The probabilities of different states of economy occurring and the holding period retum (HPR) of the Stock A and Bond B at different states of economy are shown below. State of Economy Boom Normal Recession Probability of the State of Economy 35% 45% 20% HPR of Stock A HPR of Bond B 20% -5% 12% 3% -15% 10% Other information: Standard deviation of the market portfolio is 10% 1. Calculate the standard deviation of Stock A. 2. Calculate the standard deviation of Bond B. 3. Calculate the correlation coefficient of Stock A and Bond B. 4. Suppose an investor invests $1.2 million in Stock A and $800,000 in Bond B. Calculate the standard deviation of the portfolio. 5. Out of the total variance of Stock A, 49% is systematic variance (explained variance) and 51% is non-systematic variance (unexplained variance). Calculate the beta of Stock A.

The probabilities of different states of economy occurring and the holding period retum (HPR) of the Stock A and Bond B at different states of economy are shown below. State of Economy Boom Normal Recession Probability of the State of Economy 35% 45% 20% HPR of Stock A HPR of Bond B 20% -5% 12% 3% -15% 10% Other information: Standard deviation of the market portfolio is 10% 1. Calculate the standard deviation of Stock A. 2. Calculate the standard deviation of Bond B. 3. Calculate the correlation coefficient of Stock A and Bond B. 4. Suppose an investor invests $1.2 million in Stock A and $800,000 in Bond B. Calculate the standard deviation of the portfolio. 5. Out of the total variance of Stock A, 49% is systematic variance (explained variance) and 51% is non-systematic variance (unexplained variance). Calculate the beta of Stock A.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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