Question
State ProbabilityAB Boom 0.6 20% -5% Bust 0.4-10% 10% a.What are the expected return and standard deviation of stock A? b.What are the expected return
State ProbabilityAB
Boom 0.6 20% -5%
Bust 0.4-10% 10%
a.What are the expected return and standard deviation of stock A?
b.What are the expected return and standard deviation of stock B?
c.If you invest 50% of your money in stock A and 50% of your money in stock B, what are the expected return and standard deviation for the portfolio as a whole (considering both states of the economy)?
d.Use the results of a-c to explain the benefit of diversification.
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Multinational financial management
Authors: Alan c. Shapiro
10th edition
9781118801161, 1118572386, 1118801164, 978-1118572382
