a. Estimate the expected return and risk of Asset A (TESLA) b. Estimate the Expected Return and risk of Asset B (APPLE) c. Estimate the Expected return and risk of a 60A and 40B portfolio d. Summarize your results and determine whether the Portfolio Diversification helped decrease the investment risk. Explain your answer. State of the Economy Probability of Economic State S Pr PS 1 N 0.6 Return In Economic State TESLA APPLE R R -0.15 0.27 0.35 -0.10

a. Estimate the expected return and risk of Asset A (TESLA) b. Estimate the Expected Return and risk of Asset B (APPLE) c. Estimate the Expected return and risk of a 60A and 40B portfolio d. Summarize your results and determine whether the Portfolio Diversification helped decrease the investment risk. Explain your answer. State of the Economy Probability of Economic State S Pr PS 1 N 0.6 Return In Economic State TESLA APPLE R R -0.15 0.27 0.35 -0.10

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

6. Use Excel, Calculator, and Formula. Show your work. Based on
the data below, estimate the following:
E(r) = [Probability of Economic State x Return in Economic State
0² (r) = [[Return in State; - E(r)]³ x Probability of State;
a. Estimate the expected return and risk of Asset A (TESLA)
b. Estimate the Expected Return and risk of Asset B (APPLE)
c. Estimate the Expected return and risk of a 60A and 40B
portfolio
d. Summarize your results and determine whether the Portfolio
Diversification helped decrease the investment risk. Explain your
answer.
State of the Economy Probability of Economic State
S
Pr
1
N
0.6
Return In Economic
State
TESLA APPLE
R
R
0.27
-0.10
-0.15
0.35

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Step 2: a) Computation of expected return and Risk (standard deviation) of Asset A (Tesla)

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Step 3: b) Computation of expected return and Risk (standard deviation) of Asset B (Apple)

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