Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown below: Possible Monthly Rate of Return of Security in January 2019 Probability State of Affair Stock X Stock Y Boom 0.2 50% -5% Normal 0.5 15% 8% Recession 0.3 -5% 10% Jenny plans to invest 30% of his money in X and the remainder in Y.
Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown below: Possible Monthly Rate of Return of Security in January 2019 Probability State of Affair Stock X Stock Y Boom 0.2 50% -5% Normal 0.5 15% 8% Recession 0.3 -5% 10% Jenny plans to invest 30% of his money in X and the remainder in Y.
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
Related questions
Question
-
(a) Calculate the expected
rate of return , variance and standard deviation of Stock X & Stock Y. -
(b) Assume that the covariance between Stock X and Stock Y is -0.5%. Calculate the expected rate of return, variance and standard deviation of Jenny’s portfolio.
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(c) Explain why, in general, the portfolio risk is lower than the weighted average of individual stocks’ risk.
Transcribed Image Text:Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the
common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown
below:
Possible Monthly Rate of Return of Security in January 2019
Probability
State of Affair
Stock X
Stock Y
Boom
0.2
50%
-5%
Normal
0.5
15%
8%
Recession
0.3
-5%
10%
Jenny plans to invest 30% of his money in X and the remainder in Y.
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