Calculate the portfolio’s expected return and standard deviation if you invest 25% in Stock A, 25% in Stock B, 25% in Stock C, 25% in Stock D,.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
solve please the question given.
You own three stocks and have estimated the following joint probability distribution of returns:
Market Condition |
Probability of Occurence |
Return on Stock A |
Return on Stock B |
Return on Stock C |
Return on Stock D |
Growth |
35% |
10 |
80 |
90 |
30 |
Normal |
40% |
40 |
20 |
10 |
30 |
Recession |
25% |
80 |
-10 |
-30 |
30 |
Calculate the portfolio’s expected return and standard deviation if you invest 25% in Stock A, 25% in Stock B, 25% in Stock C, 25% in Stock D,.
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