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eBook The stock of Jones Trucking is expected to return 1 5 percent annually with a standard deviation of 5 percent. The stock of Bush

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The stock of Jones Trucking is expected to return 15 percent annually with a standard deviation of 5 percent. The stock of Bush Steel Mills is expected to return 16 percent annually with a standard deviation of 8 percent. The correlation between the returns from the two securities has been estimated to be +0.2. The beta of the Jones stock is 0.9, and the beta of the Bush stock is 1.2. The risk-free rate of return is expected to be 7 percent, and the expected return on the market portfolio is 15 percent. The current dividend for Jones is $3. The current dividend for Bush is $5.
a. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place.
%
b. What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places.
%
c. Which stock is the better buy in the current market? Round your answers to one decimal place.
Required return (Jones):
%
Required return (Bush):
%
The
a stock is the better buy because the expected return is than the required return.
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