Question: 1. The expected return for stock A is 22% with a standard deviation of 25%. The expected return for stock B is 13% with a

1. The expected return for stock A is 22% with a standard deviation of 25%. The expected return for stock B is 13% with a standard deviation of 15%.

a. Which stock is riskier?

b. If you had $1,000 to invest, would you put all $1,000 in one or the other stock, or both?

2. The expected return for a stock is 10% with a standard deviation of 13%. If returns are normally distributed, what is the probability that the stock:

a. returns more than 20%?

b. results in a loss (negative returns)?

3. Suppose the two stocks A and B from problem 1 have a correlation coefficient of 0.2. What is the standard deviation of a portfolio consisting of equal proportions of A and B?

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