Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume you have created a 2-stock portfolio by investing $30,000 in stock X with a beta of 0.8, and $70,000 in stock Y with a
Assume you have created a 2-stock portfolio by investing $30,000 in stock X with a beta of 0.8, and $70,000 in stock Y with a beta of 1.2. Market risk premium is 8% and risk-free rate is 6%.The followings are the probability distributions of Stocks X and Ys future returns:
State of Economy Probability rx ry
Recession 0.1 -10% -35%
Below average 0.2 2% 0
Average 0.4 12% 20%
Above average 0.2 20% 25%
Boom 0.1 38% 45%
What is the return you expect to earn on your portfolio?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started