Assume that you recently graduated and you just landed a job as a financial planner with the Cleveland Clinic. Your first assignment is to invest $100,000. Because the funds are to be invested at the end of one year, you have been instructed to plan for a one-year holding period. Further, your boss has restricted you to the following investment alternatives, shown with their probabilities and associated outcomes.

State of Economy Probability T-Bills Alta Inds. Repo Men American Foam Market Port Recession 0.1 8.00% -22.0% 28.0% 10.0% -13.0% Below Aver 0.2 8.00% -2.0% 14.7% -10.0% 1.0% Average 0.4 8.00% 20.0% 0.0% 7.0% 15.0% Above Average 0.2 8.00% 35.% -10.0% 45.0% 29.0% Boom 0.1 8.00% 50.0% -20.0% 30.0% 43.0% Barny Smith Investment Advisors recently issued estimates for the state of the economy and the rate of return on each state of the economy. Alta Industries Inc. is an electronics firm; Repo Men Inc. collects past due devts; and American Foam manufacutresand various other foam products. Barny Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund and thus obtain average stock market results. Given the situation as described, answer the following questions. a. Calculate the expected rate of return on each alternative b. calculate the standard deviation of returns on each alternative c. Calculate the coefficient of variation on each alternative d. Calculate the beta on each alternative e. Do the SD, CV, and beta produce the same risk ranking? Why or why not? f. Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. Calculate the expected return, standard deviation, coefficient of variation, and bveta for this portfolio. how does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?

a. Expected Return = weighted average return for all probabilities For example - Alta Inds, E(R) = 0.1 x -22% + 0.2 x -2% + 0.4 x 20% + 0.2 x 35% + 0.1 x 50% = 17.40%

b. For calculating standard deviation, we need to calculate variance first. Variance formula (Alta Inds) = (-22%^2 x 0.1 + -2%^2 x 0.2 + 20%^2 x 0.4 + 35%^2 x 0.2 + 50%^2 x 0.1) - 17.40%^2 = 4.01% Std. Dev. = Square root of variance = (4.01%) ^ 0.5 = 20.04%

c. Coefficient of variation (CV) = Std. Dev./Mean Return = 20.04% / 17.40% = 115.15%

d. In excel, formula for Beta = slope (returns for alta inds, returns for market port) = slope (-22...50, -13...43) = 1.29

I still am unsure of how to solve and correctly answer e and f