Probability Stock X 0.30 -11% 0.50 8 0.20 23 I. Calculate the expected rate of retum for ea IL Calculate the standard devation of retum fo

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
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3

Security A and B have the following probability distribution
of expected future returns:
Probability
Stock X
Stock Y
0.30
-11%
19%
0.50
8
--9.50%
0.20
23
21
I. Calculate the expected rate of returm for each stock.
II. Calculate the standard deviation of return for each stock.
III. Calculate the coefficient of variation for each stock and
recommend which one you select if you take only one
project.
IV. Assume that someone held a portfolio consisting of 45
percent of stock X and 55 percent of stock Y and the
correlation between stock X and Y is -0.489. Calculate the
average rate of retum and standard deviation for this
portfolio.
Transcribed Image Text:Security A and B have the following probability distribution of expected future returns: Probability Stock X Stock Y 0.30 -11% 19% 0.50 8 --9.50% 0.20 23 21 I. Calculate the expected rate of returm for each stock. II. Calculate the standard deviation of return for each stock. III. Calculate the coefficient of variation for each stock and recommend which one you select if you take only one project. IV. Assume that someone held a portfolio consisting of 45 percent of stock X and 55 percent of stock Y and the correlation between stock X and Y is -0.489. Calculate the average rate of retum and standard deviation for this portfolio.
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