Question
probability of the state of economic Rate of return STOCK A if states STOCK B occurs STOCK C boom 0,2 0,4 -0,04 0,12 good 0,3
probability of the state of economic | Rate of return STOCK A | if states STOCK B | occurs STOCK C | |
boom | 0,2 | 0,4 | -0,04 | 0,12 |
good | 0,3 | 0,2 | 0,05 | 0,08 |
poor | 0,4 | 0,04 | 0,1 | 0,02 |
burst | 0,1 | -0,06 | 0,14 | 0 |
Calculate the expected return of each stock. b. Calculate the variance and standard deviation of each stock. c. Calculate the expected return of the portfolio (Portfolio1) consisting 40% of stock A, 40% of stock B and 20% of stock C. d. Calculate the variance and standard deviation of this portfolio. e. Consider an alternative portfolio (Portfolio2) 40% of stock A, 20% of stock B, 10% of stock C and 30% in the risk-free asset. Risk-free asset expected return is 2%. What is this portfolios expected return, variance and standard deviation? f. Based on CAPM calculate each stock beta if market risk premium is 5%. g. Which stock has the lowest systematic risk? Which stock has the lowest total risk? Which stock is safest? Explain. h. What is the beta of the Portfolio1 and Portfolio?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started