$20,500 is invested in this portfolio which consists of stocks Netflix (NFLX) and Amazon (AMZN). $8,200 is invested in NFLX. Probability of State of Economy NFLX AMZN Recession 15% 5% -17% Normal 65% 8% 12% Boom 20% 13% 29% What is the portfolio expected return and standard deviation?
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.
$20,500 is invested in this portfolio which consists of stocks Netflix (NFLX) and Amazon (AMZN). $8,200 is invested in NFLX.
| Probability of State of Economy | NFLX | AMZN | |
| Recession | 15% | 5% | -17% |
| Normal | 65% | 8% | 12% |
| Boom | 20% | 13% | 29% |
What is the portfolio expected return and standard deviation?
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