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Question 1: The following data are available about the returns of two stocks and market portfolio: Economic State Probability Stock A (%) Stock B (%) Market portfolio (%) Deep Recession 0.05 -3 -2 -13 Mild Recession 0.20 6 9 1 Average 0.50 11 12 15 Mild Boom 0.20 14 15 29 Strong Boom 0.05 19 26 43 Table 1 You are required to: a) Compute the expected return for stocks A and B b) Compute the standard deviation for stocks A and B. Which stock is riskier? c) Compute the expected return of a portfolio that comprises of 70% stock A and 30% stock B d) Compute the standard deviation of returns for the market portfolio e) Which, among stocks A, B and the market is riskier? Respond in light of your computations

Question 1: The following data are available about the returns of two stocks and market portfolio: Economic State Probability Stock A (%) Stock B (%) Market portfolio (%) Deep Recession 0.05 -3 -2 -13 Mild Recession 0.20 6 9 1 Average 0.50 11 12 15 Mild Boom 0.20 14 15 29 Strong Boom 0.05 19 26 43 Table 1 You are required to: a) Compute the expected return for stocks A and B b) Compute the standard deviation for stocks A and B. Which stock is riskier? c) Compute the expected return of a portfolio that comprises of 70% stock A and 30% stock B d) Compute the standard deviation of returns for the market portfolio e) Which, among stocks A, B and the market is riskier? Respond in light of your computations

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question 1: The following data are available about the returns of two stocks and market portfolio: Economic State Probability Stock A (%) Stock B (%) Market portfolio (%) Deep Recession 0.05 -3 -2 -13 Mild Recession 0.20 6 9 1 Average 0.50 11 12 15 Mild Boom 0.20 14 15 29 Strong Boom 0.05 19 26 43 Table 1 You are required to: a) Compute the expected return for stocks A and B b) Compute the standard deviation for stocks A and B. Which stock is riskier? c) Compute the expected return of a portfolio that comprises of 70% stock A and 30% stock B d) Compute the standard deviation of returns for the market portfolio e) Which, among stocks A, B and the market is riskier? Respond in light of your computations
Transcribed Image Text:Question 1: The following data are available about the returns of two stocks and market portfolio: Economic State Probability Stock A (%) Stock B (%) Market portfolio (%) Deep Recession 0.05 -3 -2 -13 Mild Recession 0.20 6 9 1 Average 0.50 11 12 15 Mild Boom 0.20 14 15 29 Strong Boom 0.05 19 26 43 Table 1 You are required to: a) Compute the expected return for stocks A and B b) Compute the standard deviation for stocks A and B. Which stock is riskier? c) Compute the expected return of a portfolio that comprises of 70% stock A and 30% stock B d) Compute the standard deviation of returns for the market portfolio e) Which, among stocks A, B and the market is riskier? Respond in light of your computations
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