Assume that the returns to Stock 1 and Stock 2 are related to the price of...
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Assume that the returns to Stock 1 and Stock 2 are related to the price of oil. The following chart shows the returns to the stocks that are expected to take place next year based on the price of oil: Price of Oil ($/barrel) Above $100 $90 to $100 Under $90 Probability 0.5 0.2 0.3 Return to Stock 1 -10% -4% 9% a) What is the expected return to each stock? b) What is the variance of the returns to each stock? Return to Stock 2 15% 10% 5% c) What is the standard deviation of the returns to each stock? d) For a portfolio consisting of 30% in Stock 1 and 70% in Stock 2, what are the expected return, variance and standard deviation of the returns to the portfolio? Assume that the returns to Stock 1 and Stock 2 are related to the price of oil. The following chart shows the returns to the stocks that are expected to take place next year based on the price of oil: Price of Oil ($/barrel) Above $100 $90 to $100 Under $90 Probability 0.5 0.2 0.3 Return to Stock 1 -10% -4% 9% a) What is the expected return to each stock? b) What is the variance of the returns to each stock? Return to Stock 2 15% 10% 5% c) What is the standard deviation of the returns to each stock? d) For a portfolio consisting of 30% in Stock 1 and 70% in Stock 2, what are the expected return, variance and standard deviation of the returns to the portfolio?
Expert Answer:
Answer rating: 100% (QA)
a The expected return for Stock 1 is calculated as Expected return of Stock 1 probability of return above 100 return above 100 probability of return between 90 and 100 return between 90 and 100 probab... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
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