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will leave thumbs up for answering multiple parts of the same question! 4. Consider the following possible returns on stock A, stock B, and the
will leave thumbs up for answering multiple parts of the same question!
4. Consider the following possible returns on stock A, stock B, and the market portfolio over the next year: State of economy Probability of state Return on Return on Return on occurring stock A stock B market Recession 0.2 -6% 20% -5% Normal 0.5 10% 8% 8% Boom 0.3 18% -20% 12% (d) What are the betas of the two stocks? (e) Calculate the expected return and standard deviation of a portfolio that is composed of 40% of A and 60% of B. (f) What do your answers in parts (b), (c), and (2) imply about diversification? (g) A broker has advised you not to invest in stock B because it has a higher standard deviation. Is the broker's advice sound for a risk-averse investor like yourself? Why or why notStep by Step Solution
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