Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
You have a portfolio worth $50,000 consisting of two stocks, A and B. You invested $20,000 in stock A. Consider the following information: State of
You have a portfolio worth $50,000 consisting of two stocks, A and B. You invested $20,000 in stock A. Consider the following information:
| State of economy | Probability | Return on A | Return on B |
| Growth | .30 | 10% | 20% |
| Normal | .5 | 15% | 4% |
| Recession | .2 | -12% | 0% |
a) What is the expected return for A? for B?
b) What is the standard deviation for A? for B?
c) What is the expected return and standard deviation for the portfolio?
d) What is the correlation between A and B? are there benefits to forming a portfolio of these two securities?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started