Question
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% |
|
a. What is the return on the total portfolio?
b. What is the variance and standard deviation of the portfolio?
c. Are the two stocks positively or negatively correlated? Why?
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Financial Management For Decision Makers
Authors: Peter Atrill
8th Edition
129213433X, 978-1292134338
