The expected returns earned from investment in the stock of two companies, Company A and Company B,

Question:

The expected returns earned from investment in the stock of two companies, Company A and Company B, are shown in the following table.

Use the table to complete parts (a) through (e) below.

Demand for Product	Probability of Demand	Expected Return: Stock A	Expected Return: Stock B
Strong	0.3	40%	20%
Normal	0.45	20%	5%
Weak	0.25	0%	-5%

(a) Compute the expected rates of return for each stock.

(b) Compute the standard deviations for each stock.

(c) Compute the coefficient of variation for each stock. Based on the coefficient of variation, which stock has the higher risk for investment?

(d) Assume a two-stock portfolio with $25,000 in Company A and $75,000 in Company B. Compute the expected return on the portfolio.

(e) Compute the standard deviation of the two-stock portfolio.

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...