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Mr. Samad can invest in GHB stock or KYM stock. His projection of the returns on these two stocks is as follows: State Probability Return

Mr. Samad can invest in GHB stock or KYM stock. His projection of the returns on these two stocks is as follows:

State

Probability

Return on GHB

(%)

Return on KYM

(%)

Bust

0.25

-2.0

5.0

Normal

0.60

9.2

6.2

Boom

0.15

15.4

7.4

Required:

  1. Calculate the expected return of each stock
  2. Calculate the standard deviation of return of each stock
  3. Calculate the expected return on the portfolio if Mr. Samad invested 40% in GHB and 60% in KYM.
  4. Calculate the standard deviation on the portfolio.

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