An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm’s prospects look neutral and you estimate the following probability distribution of possible returns: Conditions P Returns on DBB Returns on DVI Recession 0.10 -30% -15% Below Average 0.20 -15% 4% Average 0.40 15% 8% Above Average 0.20 28% 20% Boom 0.10 40% 22% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let’s say you want to add another asset, DVI, to your portfolio. You sell 20% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio? Please show the Excel formulas.
An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm’s prospects look neutral and you estimate the following probability distribution of possible returns: Conditions P Returns on DBB Returns on DVI Recession 0.10 -30% -15% Below Average 0.20 -15% 4% Average 0.40 15% 8% Above Average 0.20 28% 20% Boom 0.10 40% 22% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let’s say you want to add another asset, DVI, to your portfolio. You sell 20% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?
Please show the Excel formulas.
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