Required: a. The expected returns for stock A and stock B b. The standard deviation of stock A and stock B's returns. c. Assume that you invest 40% of your wealth in stock A and 60% of your wealth in the S&P 500. Calculate the expected return of your portfolio.
Required: a. The expected returns for stock A and stock B b. The standard deviation of stock A and stock B's returns. c. Assume that you invest 40% of your wealth in stock A and 60% of your wealth in the S&P 500. Calculate the expected return of your portfolio.
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
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Required:
a. The expected returns for stock A and stock B
b. The standard deviation of stock A and stock B's returns.
c. Assume that you invest 40% of your wealth in stock A and 60% of your wealth in the S&P 500. Calculate the expected return of your portfolio.
Transcribed Image Text:QUESTION 1
Assume that you can invest in any of the following three securities today. You will hold
them for a year, however, there is uncertainty about how well your investments will do
over the ensuing year. This uncertainty is represented by the three "states of nature" that
can potentially occur with probabilities of 1/3, 1/3, 1/3. The returns for each security in the
three states of nature are given in the table below:
Probability of
"state"
1/3
1/3
1/3
Stock A
19%
3%
23%
Stock B
0%
12%
20%
S&P 500
5%
10%
15%
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