Plz show the formula step by step. There is the following table shows the probabilities of occurrence of 3 states and the expected rate of returns on stocks A and B State Probability Expected rate of Returns on Stock A Expected rate of Returns on Stock B Boom 0.5 0.25 0.20 Neutral 0.3 0.15 0.10 Recession 0.2 0.05 0.02 (A) Calculate the expected rates of returns and standard deviations of stocks A and B.
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.
Plz show the formula step by step.
There is the following table shows the probabilities of occurrence of 3 states and the expected
| State | Probability | Expected rate of Returns on Stock A |
Expected rate of Returns on Stock B |
| Boom | 0.5 | 0.25 | 0.20 |
| Neutral | 0.3 | 0.15 | 0.10 |
| Recession | 0.2 | 0.05 | 0.02 |
(A) Calculate the expected rates of returns and standard deviations of stocks A and B.
The colleague has given you his
| State | Probability | Expected rate of Returns on Stock C |
Expected rate of Returns on Stock D |
| Boom | 0.7 | 0.40 | -0.10 |
| Bust | 0.3 | -0.05 | 0.30 |
She would like to invest 80% of his money in stock C and 20% of her money in stock D to construct a portfolio.
(B) Calculate the portfolio's expected rate of returns and its standard deviation
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