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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

  1. 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%

  1. How much is the expected return for DBB?
  2. How much is the coefficient of variation for DBB?
  3. 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?
  4. How much is the coefficient of variation for the new portfolio?

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