Question
Consider the following stock return scenarios for three stocks: Economy Stock A Stock B Stock C Up 8% 2% 12% Average 5% 3% 0% Down
Consider the following stock return scenarios for three stocks:
| Economy | Stock A | Stock B | Stock C |
| Up | 8% | 2% | 12% |
| Average | 5% | 3% | 0% |
| Down | 0% | 4% | -5% |
If each state of the economy is equally likely, calculate the expected return and population standard deviation for a portfolio invested entirely in Stock A. Which stock should be added to the portfolio to reduce risk?
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Advanced Bond Portfolio Management
Authors: Frank J. Fabozzi, Lionel Martellini, Philippe Priaulet
1st Edition
0471678902, 9780471678908
