Question
Question 4 Investor constitutes a portfolio by investing equal proportions in stocks A and B. Financial Situation Probability Return Stock A Return Stock B Good
Question 4
Investor constitutes a portfolio by investing equal proportions in stocks A and B.
Financial Situation Probability Return Stock A Return Stock B
Good 0.4 20% 10%
Stable 0.4 5% 0%
Bad 0.2 - 5% 20%
(i) Calculate the expected rate of return of the portfolio.
(ii) Calculate the covariance between the returns of stocks A and B.
(iii) Calculate the risk of the portfolio.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
