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dev - with Unequal Probabilities> States of the Economy and Stock Returns Security Returns if State Occurs Starcents Jpod -20% 30% Probability of State of
dev - with Unequal Probabilities> States of the Economy and Stock Returns Security Returns if State Occurs Starcents Jpod -20% 30% Probability of State of Economy State of Economy Recession Boom 70 10 1.00 Takehome #7: individual securities' expected return and standard deviation Suppose you thought a boom state would occur 20 percent of the time (So Recession probability = 1.00 -0.20 = 0.80.). Suppose risk-free rate = 8% 1. What are the expected returns on Starcents and Jpod, respectively? 2. If the risk-free rate is 10 percent, what are the risk premiums for Startcents and Jpod, respectively? 3. What is the standard deviation of Starcents and Jpod, respectively? Takehome #8: portfolio's expected return and standard deviation Using the above two securities' information, you are forming a portfolio. Suppose you invest 30% into Starcents and 70% into Jpods 1. What is the expected return of this portfolio? 2. What is the standard deviation of this portfolio
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