I have done most of the problems I just need help on the last one. I am not sure how comparing the two would change equation.

9/1/2014 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 5 -- Financial Risk and Required Return Mini-Case Assume that you recently graduated and you just landed a job as a financial planner with the Cleveland Clinic. Your first assignment is to invest $100,000. Because the funds are to be invested at the end of one year, you have been instructed to plan for a one-year holding period. Further, your boss has restricted you to the following investment alternatives, shown with their probabilities and associated outcomes. State of Economy Recession Below Average Average Above Average Boom Probability 0.1 0.2 0.4 0.2 0.1 T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% American Alta Inds. Repo Men Foam -22.0% 28.0% 10.0% -2.0% 14.7% -10.0% 20.0% 0.0% 7.0% 35.0% -10.0% 45.0% 50.0% -20.0% 30.0% Market Port. -13.0% 1.0% 15.0% 29.0% 43.0% Barney Smith Investment Advisors recently issued estimates for the state of the economy and the rate of return on each state of the economy. Alta Industries, Inc. is an electronics firm; Repo Men Inc. collects past due debts; and American Foam manufactures mattresses and various other foam products. Barney Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund and thus obtain average stock market results. Given the situation as described, answer the following questions. a. Calculate the expected rate of return on each alternative. b. Calculate the standard deviation of returns on each alternative. c. Calculate the coefficient of variation on each alternative. d. Calculate the beta on each alternative. e. Do the SD, CV, and beta produce the same risk ranking? Why or why not? f. Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. Calculate the expected return, standard deviation, coefficient of variation, and beta for this portfolio. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation? ANSWER a) State of Economy Recession Below Average Average Above Average Boom Expected ROR b) Probability 0.1 0.2 0.4 0.2 0.1 1 T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% 8.0% American Alta Inds. Repo Men Foam -22.0% 28.0% 10.0% -2.0% 14.7% -10.0% 20.0% 0.0% 7.0% 35.0% -10.0% 45.0% 50.0% -20.0% 30.0% 17.4% 1.7% 13.8% Market Port. -13.0% 1.0% 15.0% 29.0% 43.0% 15.0% State of Economy Recession Below Average Average Above Average Boom Probability 0.1 0.2 0.4 0.2 0.1 1 American Alta Inds. Repo Men Foam -22.0% 28.0% 10.0% -2.0% 14.7% -10.0% 20.0% 0.0% 7.0% 35.0% -10.0% 45.0% 50.0% -20.0% 30.0% T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% 0 0.256936 0.171338 0.191269 Standard Deviation Market Port. -13.0% 1.0% 15.0% 29.0% 43.0% 0.19799 c) State of Economy Recession Below Average Average Above Average Boom Probability 0.1 0.2 0.4 0.2 0.1 1 T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% American Alta Inds. Repo Men Foam -22.0% 28.0% 10.0% -2.0% 14.7% -10.0% 20.0% 0.0% 7.0% 35.0% -10.0% 45.0% 50.0% -20.0% 30.0% 8% 16% 0 147.6642 Mean Coefficient of Variation 3% 984.7 Market Port. -13.0% 1.0% 15.0% 29.0% 43.0% 16% 15% 138.601 131.9933 d) State of Economy Recession Below Average Average Above Average Boom Probability 0.1 0.2 0.4 0.2 0.1 T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% 0 0.08 beta intercept American Alta Inds. Repo Men Foam -22.0% 28.0% 10.0% -2.0% 14.7% -10.0% 20.0% 0.0% 7.0% 35.0% -10.0% 45.0% 50.0% -20.0% 30.0% 0.2 -0.133333 -0.433333 0.122 0.052067 0.250667 Market Port. -13.0% 1.0% 15.0% 29.0% 43.0% 0 0.15 e) They all measure the risk of an asset. They all produce the same risk ratings. Even though the number look different they are still operating with the same amount of risk. f) State of Economy Recession Below Average Average Above Average Boom Probability 0.1 0.2 0.4 0.2 0.1 T-Bills 8.00% 8.00% 8.00% 8.00% 8.00% Alta Inds. Repo Men -22.0% 28.0% -2.0% 14.7% 20.0% 0.0% 35.0% -10.0% 50.0% -20.0% 1