Using the historical records for each stock you have been able to make the estimates contained in
Question:
Using the historical records for each stock you have been able to make the estimates contained in the table which follows. Each stock is publically traded on the Toronto Stock Exchange.
State of Economy | Probability of Economic State | STOCK A | STOCK B | STOCK C |
BOOM | 0.20 | 0.25 | 0.35 | 0.60 |
NORMAL | 0.55 | 0.15 | 0.15 | 0.10 |
BUST | 0.25 | 0.00 | -0.10 | -0.45 |
One of the firm's clients has a portfolio which has invested 40% in each of Stock A and Stock B and 20% in Stock C.
Please do the following:
(a) Using the above information calculate the expected return for the portfolio.
(b) Calculate the portfolio's variance and standard deviation.
(c) What does the standard deviation of the portfolio measure?
(d) If the expected rate of return on Treasury Bills is 3.00%, then what is the expected risk premium on this portfolio?
(e) What is the beta of this portfolio, if the market portfolio has an expected return of 8%?
(f) Does this portfolio have more systematic risk than the market portfolio?
Expert Answer:
Step 11 a Using the above information the expected return for the portfolio can be calculated by tak... View the full answer
