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You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the following probability distribution.
Returns | |||
Probability | Economic Condition | Stock X | Stock Y |
0.1 | Recession | -50 | -100 |
0.2 | Slow Growth | 20 | 50 |
0.45 | Moderate Growth | 100 | 130 |
0.25 | Fast Growth | 150 | 200 |
Compute the:
- Expected Return for Stock X and Stock Y.
- Standard Deviation for Stock X and Stock Y
- Would you invest in Stock X or Stock Y? Explain.
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