Question
Security A and B have the following probability distribution of expected future returns: Probability Stock X Stock Y 0.30 -11% 19% 0.50 8 -9.50% 0.20
Security A and B have the following probability distribution of expected future returns: |
Probability | Stock X | Stock Y |
0.30 | -11% | 19% |
0.50 | 8 | -9.50% |
0.20 | 23 | 21 |
I. Calculate the expected rate of return for each stock. |
II. Calculate the standard deviation of return for each stock. |
III. Calculate the coefficient of variation for each stock and recommend which one you select if you take only one project. |
IV. Assume that someone held a portfolio consisting of 45 percent of stock X and 55 percent of stock Y and the correlation between stock X and Y is -0.489. Calculate the average rate of return and standard deviation for this portfolio. |
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