Question
You have the following information: State of economy Probability Returns of Stock A Returns of Stock B I 30% 6% 20% II 40% 18% 15%
You have the following information:
State of economy | Probability | Returns of Stock A | Returns of Stock B |
---|---|---|---|
I | 30% | 6% | 20% |
II | 40% | 18% | 15% |
III | 30% | 28% | 35% |
You are a risk analyst of an investment bank. You have been asked to perform the following calculations:
(a) Calculate: expected return and standard deviation of stock A and B.
(b) Calculate the covariance and correlation coefficient between stock A and B.
(c) How would you construct a portfolio to generate 21% expected return? Calculate the weight (proportion) of stock A and B in your portfo
Probability | Return of A | Total Return | Probability | Return of B | Total Return |
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