Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have just formed your portfolio by buying one share of Apple, which costs $ 1 5 0 ? share and a share of Microsoft,

You have just formed your portfolio by buying one share of Apple, which costs $150? share and a share of Microsoft, which costs $250? share. Over the next one year, you think the economy will be either good or bad with probability of 0.5 each. And the future return for each stock given the economic condition is as follows.
\table[[,Apple,Microsoft],[\table[[Economy is Good],[(probability =0.5)]],0.04,0.10],[\table[[Economy is Bad (pro],[bability =0.5)]],-0.02,-0.06]]
(a) Find the expected return for the Apple stock and the Microsoft stock.
Note: Please write your answer in decimal form up to 2 decimal places.
Apple:
Microsoft:
(b) Find the standard deviation of the future return for the Apple stock and the Microsoft stock.
Note: The value should be rounded to 4 decimal places in the intermediate steps and 2 decimal places on final result.
Apple:
Microsoft:
(c) Find the expected return of your portfolio.
Note: The value should be rounded to 4 decimal places in the intermediate steps and five decimal places on final result.
The expected return of the portfolio:
(d) Find the correlation between these two stock returns.
Note: The value should be rounded to 4 decimal places in the intermediate steps and a whole number on final result.
Corr(RApple, RMicrosoft
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Challenging Global Finance

Authors: Elizabeth Friesen

2012th Edition

0230348793, 978-0230348790

More Books

Students also viewed these Finance questions

Question

Does it exceed two pages in length?

Answered: 1 week ago

Question

Does it avoid typos and grammatical errors?

Answered: 1 week ago