How to do 1c

KB 1. An investor is considering the purchase of Gryphon stock, which has returns given in the table below. Scenario Probability Rate of Return Recession 0.22 0% Normal Economy 0.55 9% Boom 0.23 18% la. Calculate the expected return and standard deviation of Gryphon. Round your answers to 2 decimal places. E () = ER, x P, = (0.22x 0)+ (0.55 x 9) + (0.23*18) = 9.09 6 Variance = x -0.22 (0-9.09) +0.55 ( 9-9.09)2+0.23 (18- 9.0 9)2= 36. 4419 Std. Dev. = [0) 12 = (36.441 9)12 = 6. 036712682 ~6.04% 1b. The investor decides to diversify by investing $7,000 in Gryphon stock and $5,000 in Royal stock, which has an expected return of 5% and a standard deviation of 9.3%. The correlation coefficient for the two stocks' returns is 0.6. Calculate the expected return and standard deviation of the portfolio. Round your answers to 2 decimal places. - Investment in stock1: $7000 -> E ( r ) = Wirtwar - Investment in stock 2:$5000 = 12 ( 9.09) + 75 (5)= 7.3858 33 333 x7.39% : Weight W, = 7090 12000 - =. 12 old. Dev . = 5, = Nwpop + W; 02 + 2w, w z , Cup : Weight W2= 5000 12000 = N( 71 x 6:04)2 + (42 x9.3)2+2X7z X-75x 6.04x 9.3*0.6 Based on given information , = 6. 61 913 9127 EG) = 9.09% V, = 6.04% WI= 12 26.62% E (2) = 5% V 2 = 9.3% W2- TE Correlation Coefficient = p= 0.6 1c. Suppose the investor decides to invest an additional $3,000 in a treasury bill yielding 3%. What will be the expected return and standard deviation of this portfolio