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There are two stocks in the market, stock A and stock B . The price of stock A today is $ 6 9 . The
There are two stocks in the market, stock A and stock The price of stock A today is $ The price of stock A next year will be $ if the economy is in a recession, $ if the economy is normal, and $ if the economy is expanding. The probabilities of recession, normal times, and expansion are and respectively. Stock A pays no dividends and has a beta of Stock B has an expected return of a standard deviation of a beta of and a correlation with stock of The market portfolio has a standard deviation of Assume the CAPM holds. a What are the expected return and standard deviation of stock Do not round intermediate calculations. Round the final answers to decimal places. b If you are a typical, riskaverse investor with a welldiversified portfolio, which stock would you prefer? Stock Stock B c What are the expected return and standard deviation of a portfolio consisting of of stock A and of stock BDo not round intermediate calculations. Round the final answers to decimal places. d What is the beta of the portfolio in cDo not round intermediate calculations. Round the final answer to decimal places. Beta of the portfolio
There are two stocks in the market, stock A and stock The price of stock A today is $ The price of stock A next year will be $ if
the economy is in a recession, $ if the economy is normal, and $ if the economy is expanding. The probabilities of recession,
normal times, and expansion are and respectively. Stock A pays no dividends and has a beta of Stock B has an
expected return of a standard deviation of a beta of and a correlation with stock of The market portfolio has a
standard deviation of Assume the CAPM holds.
a What are the expected return and standard deviation of stock Do not round intermediate calculations. Round the final
answers to decimal places.
b If you are a typical, riskaverse investor with a welldiversified portfolio, which stock would you prefer?
Stock
Stock B
c What are the expected return and standard deviation of a portfolio consisting of of stock A and of stock BDo not round
intermediate calculations. Round the final answers to decimal places.
d What is the beta of the portfolio in cDo not round intermediate calculations. Round the final answer to decimal places.
Beta of the portfolio
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