The common stock of Escapist Films sells for $25 a share and offers the following payoffs next

Question:

The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year:

Calculate the expected return and standard deviation of Escapist. All three scenarios are equally likely. Then calculate the expected return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita (from Problem 15). Show that the portfolio standard deviation is lower than that of either stock. Explain why this happens.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...