ALTERNA TIVES 2. Fi VL Portfolio U Portfolio V Portfolio W Recessi on $25 $47 $50 .3 Inflatio n $75 $ 70 $ 80 5 Depressi on $0 $-5 $ 15 .2 DMUR: Consider now that the probabilities for each demand have been calculated as 3, 5, and .2, respectively. Find the expected value (Xbar), the standard deviation (Sigma), and the Coefficient of Variation (CoV) for each alternative. Which portfolio would you recommend on the basis of the three?
ALTERNA TIVES 2. Fi VL Portfolio U Portfolio V Portfolio W Recessi on $25 $47 $50 .3 Inflatio n $75 $ 70 $ 80 5 Depressi on $0 $-5 $ 15 .2 DMUR: Consider now that the probabilities for each demand have been calculated as 3, 5, and .2, respectively. Find the expected value (Xbar), the standard deviation (Sigma), and the Coefficient of Variation (CoV) for each alternative. Which portfolio would you recommend on the basis of the three?
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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Transcribed Image Text:ALTERNA
TIVES
2.
Fi
VL
Portfolio U
Portfolio V
Portfolio
W
Recessi
on
$25
$ 47
$ 50
3
Inflatio
n
$75
$ 70
$ 80
5
TES OF N
ATURE
STA
Depressi
on
$0
$-5
$ - 15
.2
DMUR:
Consider now
that the
probabilities for each demand have been
calculated as 3, 5, and .2, respectively. Find
the expected value (Xbar), the standard
deviation (Sigma), and the Coefficient of
Variation (CoV) for each alternative. Which
portfolio would you recommend on the basis
of the three?
Transcribed Image Text:PRACTICE 2 - DMUR
A stock market advisory service offers three investments
portfolios for one of its customers. All portfolios have the
same investment cost. Portfolio U contains speculative stocks,
which aim for capital gain through price appreciation. Portfolio
V is made
up of stocks of stable companies that pay good
dividends overt the long run. Portfolio W comprises stocks
with a moderate potential for growth and a moderate yield of
dividends.
The customer has enough money to invest in only
one of these
three portfolios for a period of one year. The net return on
investments will depend on whether the economy during the
period will be in a stage of inflation, recession, or
depression. The net potential gains or losses (in thousands)
are calculated follows:
as
Expert Solution
Step 1
The expected value of a portfolio indicates how much return can be expected from investing in the portfolio while the standard deviation indicates the spread of returns from the mean. They together help the investor as they show the profits that can be earned and the associated risk.
The coefficient of variation shows the level of variability of returns around the expected value.
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