Consider the following scenario analysis: State of Economy Normal Boom Probability of State of Economy .81...
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Consider the following scenario analysis: State of Economy Normal Boom Probability of State of Economy .81 .19 Stock X 11.20% 18.50% Return if State Occurs Stock Y 4.60% 26.50% Stock Z 13.60% 18.00% a) Calculate the return for each stock. Which stock provides higher returns? b) Calculate the risk for each stock. Which stock has more risk? c) You decide to invest in a portfolio consisting of 21 percent Stock X, 45 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio? d) Would you prefer to invest in the portfolio, or in one of the Stocks only? Explain the benefit of diversification. Consider the following scenario analysis: State of Economy Normal Boom Probability of State of Economy .81 .19 Stock X 11.20% 18.50% Return if State Occurs Stock Y 4.60% 26.50% Stock Z 13.60% 18.00% a) Calculate the return for each stock. Which stock provides higher returns? b) Calculate the risk for each stock. Which stock has more risk? c) You decide to invest in a portfolio consisting of 21 percent Stock X, 45 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio? d) Would you prefer to invest in the portfolio, or in one of the Stocks only? Explain the benefit of diversification.
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Answer rating: 100% (QA)
a To calculate the return for each stock we multiply the probability of each state of the economy by the corresponding return if that state occurs For Stock X Return Probability of Normal Economy Retu... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
Posted Date:
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