Question
rket, Logan Morgan is considering an investment in one of two portfolios. Given the information that follows, which investment is better, based on risk (as
rket, Logan Morgan is considering an investment in one of two portfolios. Given the information that follows, which investment is better, based on risk (as measured by the standarddeviation) and return as measured by the expected rate of return?
Portfolio A | Portfolio B | ||
Probability | Return | Probability | Return |
---|---|---|---|
0.15 | 1% | 0.12 | 6% |
0.53 | 17% | 0.25 | 10% |
0.32 | 23% | 0.35 | 10% |
0.28 | 17% |
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Part 1
a. The expected rate of return for portfolio A is
enter your response here%.
(Round to two decimal places.)
Part 2
The standard deviation of portfolio A is
enter your response here%.
(Round to two decimalplaces.)
Part 3
b. The expected rate of return for portfolio B is
enter your response here%.
(Round to two decimal places.)
Part 4
The standard deviation for portfolio B is
enter your response here%.
(Round to two decimalplaces.)
Part 5
c. Based on the risk (as measured by the standard deviation) and return as measured by the expected rate of return of each stock, which investment is better?(Select the bext choice below.)
A.
Portfolio A is better because it has a higher expected rate of return with more risk.
B.
Portfolio B is better because it has a lower expected rate of return with less risk.
C.
Based on risk alone, portfolio B is better because it has lowerrisk; and based on return alone, portfolio A is better because it has a higher return.
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