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You are given the following information: Market return Probability (p) 0.2 0.3 0.3 0.2 (rm) Stock return (rs) 15 20 10 8 6 12
You are given the following information: Market return Probability (p) 0.2 0.3 0.3 0.2 (rm) Stock return (rs) 15 20 10 8 6 12 -2 -10 a. Compute the expected market return and expected stock returns. [4+4 marks] b. If the standard deviation of market returns is 5.64%, what is the standard deviation of stock returns? [5 marks] c. If you create a portfolio with 40% weight on market index and 60% weight on the stock, what will be the expected return of your portfolio? [4 marks] d. If the correlation coefficient between the rm and rs is 0.90, what is the standard deviation of your portfolio. [5 marks] e. What is beta of the stock (the systematic risk)? [3 marks]
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