Question
Consider the following information: Rate of return State of Economy Probability Stock A Stock B Recession 0.30 2% 5% Normal 0.50 7% 4% Boom 0.20
Consider the following information: Rate of return State of Economy Probability Stock A Stock B Recession 0.30 2% 5% Normal 0.50 7% 4% Boom 0.20 12% 3% Required: a. Calculate the expected return for the two Stocks A and B respectively. b. Calculate the standard deviation for the two Stocks A and B respectively. c. If you own a portfolio that has $1.3 million invested in Stock A and $2.2 million invested in Stock B. Calculate the expected return and standard deviation for the portfolio. d. Compute the portfolio standard deviation using the weighted average of individual asset's standard deviation for the portfolio as mentioned in part (c) above. e. Comment and explain the different results obtained in parts (c) and (d) above critically [within words].
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