Question
The price of Stock A today is 50, and stock B is 100. The probability of a booming, normal, and recessionary economy are 0.2, 0.7,
The price of Stock A today is 50, and stock B is 100. The probability of a booming, normal, and recessionary economy are 0.2, 0.7, and 0.1 respectively. If the economy is booming, stocks A price will be 65 and stock B will be 108. If the economy is normal, stocks A price will be 55 and stocks B will be 105. If the econ falls into recession, stocks A price will be 40 and stocks B will be 102. a) Calculate the expected return and standard deviation for each stock. b) Assume you create a portfolio and put 50% of you money in stock A and 50% of you money in stock B. Calculate the portfolio expected return and standard deviation. Please show formula and steps
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