The following table details a FOW analyst's prediction of the probabilities of different states of the...
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The following table details a FOW analyst's prediction of the probabilities of different states of the market over the next year, along with the forecast returns on two stocks in each different market state. State Great Good Average Bad Probability 0.1 0.3 0.4 0.2 Return on stock A 31% 13% 12% -9% Return on stock B 15% 18% 10% 3% a) What are the expected returns on Stock A and Stock B? b) Calculate the risk of stock A and stock B. c) Suppose you invest 40% in share A, and 60% in share B. What is the expected return on your portfolio? d) What is your portfolio risk? Given the covariance between the two securities is 0.00443. The following table details a FOW analyst's prediction of the probabilities of different states of the market over the next year, along with the forecast returns on two stocks in each different market state. State Great Good Average Bad Probability 0.1 0.3 0.4 0.2 Return on stock A 31% 13% 12% -9% Return on stock B 15% 18% 10% 3% a) What are the expected returns on Stock A and Stock B? b) Calculate the risk of stock A and stock B. c) Suppose you invest 40% in share A, and 60% in share B. What is the expected return on your portfolio? d) What is your portfolio risk? Given the covariance between the two securities is 0.00443.
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Solution a The expected returns on Stock A and Stock B can be calculated by weighting the returns in ... View the full answer
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