Investments

Question 2 (15 Marks) The probabilities for the three states of the market and probabilities for the holding- period returns (HPR) on Cheese Stock and Wine Stock are as follows: a. State of Market Probability HPR (incl. dividend) HPR (incl. dividend) Cheese Stock Wine Stock Boom 0.25 30% 52% Normal growth 0.55 16% 18% Recession 0.20 -15% -25% Find the expected holding-period returns (HPR) for Cheese Stock and Wine Stock 4 marks b. Find the expected variance and expected standard deviations for Cheese Stock and Wine Stock 8 marks Pual has a $5,000,000 stock portfolio, in which he invested $2,000,000 in Cheese Stock and $3,000,000 in Wine Stock. Calculate the expected return of Paul's portfolio 3 marks Show all your calculations