You are considering investing in two stocks. Your concern is that the economy may not do well.
Fantastic news! We've Found the answer you've been seeking!
Question:
- You are considering investing in two stocks. Your concern is that the economy may not do well. But you are fairly confident that the economy will grow at a normal rate with moderate inflation and interest rates given a range of economic outcomes over the next year.
- Calculate the expected returns and standard deviation for each stock.
State of Economy | Probability of State of Economy | Rate of Return If State Occurs | |
Stock A | Stock B | ||
Recession | .20 | −.15 | .20 |
Normal | .50 | .20 | .30 |
Boom | .30 | .60 | .40 |
Using the information above, suppose you have $20,000 total. If you put $15,000 in Stock A and the remainder in Stock B, and the economy exists in a normal state for one year, what will be the expected return and standard deviation of your portfolio?
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
Posted Date: