Question
Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. State of Economy Probability T-Bills Alta Inds. Repo
Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men.
| State of Economy | Probability | T-Bills | Alta Inds. | Repo Men | American Foam | Market Port. |
| Recession | 0.1 | 8.00% | -22.0% | 28.0% | 10.0% | -13.0% |
| Below Average | 0.2 | 8.00% | -2.0% | 14.7% | -10.0% | 1.0% |
| Average | 0.4 | 8.00% | 20.0% | 0.0% | 7.0% | 15.0% |
| Above Average | 0.2 | 8.00% | 35.0% | -10.0% | 45.0% | 29.0% |
| Boom | 0.1 | 8.00% | 50.0% | -20.0% | 30.0% | 43.0% |
| Tbills | Alta Inds. | Repo Men | AmericanFoam | Market Port | |
| Expectedreturn | 8% | 17.40% | 1.74% | 13.80% | 15.00% |
| Variance | 0% | 4.01% | 1.79% | 3.54% | 2.35% |
| Standard Deviation | 0% | 20.04% | 13.36% | 18.82% | 15.34% |
| coefficient of variation | 0% | 115.15% | 768.03% | 136.37% | 102.24% |
| Beta | 0.00 | 1.29 | -0.86 | 0.68 | 1.00 |
A. Calculate the expected return, standard deviation, coefficient of variation, and beta for this portfolio.
B. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?
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Corporate Financial Management
Authors: Douglas R. Emery, John D. Finnerty, John D. Stowe
4th Edition
1935938002, 9781935938002
