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An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firms prospects look neutral and you estimate the following
- An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firms prospects look neutral and you estimate the following probability distribution of possible returns:
Conditions | P | Returns on DBB | Returns on DVI |
Recession | 0.10 | -30% | -15% |
Below Average | 0.20 | -15% | 4% |
Average | 0.40 | 15% | 8% |
Above Average | 0.20 | 28% | 20% |
Boom | 0.10 | 40% | 22% |
- How much is the expected return for DBB?
- How much is the coefficient of variation for DBB?
- Now lets say you want to add another asset, DVI, to your portfolio. You sell 30% of DBB to purchase DVI. How much is your expected return for this portfolio?
- How much is the coefficient of variation for the new portfolio?
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