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You are thinking about investing your money in the stock market. You have the following two stocks in mind: stock A and stock B. You
You are thinking about investing your money in the stock market. You have the following two stocks in mind: stock A and stock B. You know that the economy can either go in recession(bad), normal or it will boom (good). You also know the following about your two stocks: You also have information that the correlation coefficient between the two stocks as -0.6. a) Calculate the expected return for stock A and stock B. (5 Marks) b) Calculate the risk (standard deviation) for stock A and for stock B. (5 Marks) c) Calculate the expected return and the standard deviation of a portfolio comprised of stocks A and B. The weight in stock A is 60%. (10 Marks) d) Explain your answers
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