A close family friend has approached you to help her determine which of the two common stocks
Question:
A close family friend has approached you to help her determine which of the two common stocks she should invest in.
Common Stock A | Common Stock B | |||
Probability | Return | Probability | Return | |
0.33 | 11% | 0.25 | -5% | |
0.33 | 15% | 0.25 | 6% | |
0.33 | 19% | 0.25 | 14% | |
0.15 | 22% |
Required:
a) Calculate the expected returns of stock A
b) Determine the risk (standard deviation) and return of stock A
c) Calculate the expected returns of stock B
d) Determine the risk (standard deviation) and return of stock B
e) Which investment should your friend invest in?
f) Jenny has decided that she will invest her $100,000 savings in stocks as follows:
Company | Percentage of investment | Expected rate of return |
Standards Company Limited | 45% | 9% |
Starbucks | 15% | 12% |
Treasury Bill | 40% | 4% |
Required:
What rate of return should Jenny expects to receive on her portfolio?
a) Calculate the expected returns of stock A
b) Determine the risk (standard deviation) and return of stock A
c) Calculate the expected returns of stock B
d) Determine the risk (standard deviation) and return of stock B
e) Which investment should your friend invest in?
f) Jenny has decided that she will invest her $100,000 savings in stocks.
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo