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Pierre is considering a portfolio with 50% invested in Stock A and 50% invested in Stock B. These are the expected returns. Economic State Probability
- Pierre is considering a portfolio with 50% invested in Stock A and 50% invested in Stock B. These are the expected returns.
| Economic State | Probability of State | Return on Stock A | Return on Stock B | Return on Portfolio |
|---|---|---|---|---|
| Poor | .30 | -15% | 25% | |
| Fair | .50 | 10% | 5% | |
| Boom | .20 | 30% | /5% |
- What is the return on the total portfolio?
- What is the variance and standard deviation of the portfolio?
- Are the two stocks positively or negatively correlated? Why?
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