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The analysis of outcomes for sales and the associated rate of return on common stocks for companies X and Y are shown below. You intend
The analysis of outcomes for sales and the associated rate of return on common stocks for companies X and Y are shown below. You intend to form a portfolio by allocating $3750 of your total wealth of $5000 in Company X, and the remainder in Company Y. The covariance between the two companies is-000927. Show all work to receive full credit rising 25% 35% Declining Probability % return X % return Y flat 40% -0.4% 5.2% 10.8% 18.3% 21.7% 23.5% 1. a) What is the expected return and standard deviation for common stocks in each company? (3 pts each) 2. What is the portfolio return (2pts) and standard deviation (3pts) for this two-stock portfolio? Explain in words how this compares with the individual standard deviations of the stocks? (3pts)
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