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Stocks A and B have the following probability distributions: % Returns Probability A B 0.05 30 45 0.30 12 10 0.40 1 -15 0.25 -6

Stocks A and B have the following probability distributions:

% Returns

Probability

A

B

0.05

30

45

0.30

12

10

0.40

1

-15

0.25

-6

-30

a) Calculate the expected rate of return for each stock.

b) Calculate the standard deviation for each stock.

c) Calculate the coefficient of variation for each stock.

d) If you form a 50-50 portfolio of the two stocks, calculate the expected rate of return, the standard deviation and the coefficient of variation for the portfolio.

(Remember, you must calculate a new range of outcomes for the portfolio.)

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