Problem 2.(40 points) You are a risk averse investor and you want to choose between General motors company and Apple. The likely retum of each company next year, and the associated probability for each level of return, is shown below. Probability Apple General motors .40 20% 5% 40 0% 10% .20 -10% -5% Calculate the expected value, standard deviation and coefficient of variation for each company 7 !!! MTT Expected value Apple General motors Standard deviation variance Apple General motors Coefficient of variation Apple General motors Which company is considered riskier and why? ? B I E E o 3. You have decided to buy a portfolio consisting of 20 percent of G.M and B0 percent of Apple. What is the expected return on this portfolio? And the standard deviation? Did you make the right decision? 5 " B I ELE 22 Expected return - Portfolio = Standard deviation - Portfolio = 4. Looking at the returns of the two companies would you guess that the correlation coefficient between returns is closer to 0.9 or -0.9