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Du-Point asset management company intends to invest in two stocks with the following risk and return trade off; Probability Stock A Stock B 0.1 33%

  1. Du-Point asset management company intends to invest in two stocks with the following risk and return trade off;

Probability Stock A Stock B

0.1 33% 60%

0.2 20% 30%

0.4 15% 5%

0.3 0% -20%

Required

  1. Calculate the expected return of each stock (3 Marks)

  2. Calculate the risk of each stock ( 4 Marks)

  3. Calculate coefficient of variation of each stock ( 2 Marks)

  4. Calculate the expected return of the portfolio consisting of 50% of each stock

  5. If you are risk averse investor which stock would you prefer to hold and why

  6. Distinguish between systematic risk and un-systematic risk giving three examples in each case

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