Question

Suppose there are five stocks available for investment and each has an annual mean return of 10% and a standard deviation of 4%. Assume the returns on the stocks are independent random variables.
a. If you invest 20% of your money in each stock, find the mean and standard deviation of the annual dollar return on your investments.
b. If you invest $100 in a single stock, determine the mean and standard deviation of the annual return on your investment.
c. How do the answers to parts a and b relate to the phrase, “Don’t put all your eggs in one basket”?



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  • CreatedApril 01, 2015
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