1.Two stocks have the following possible outcomes:

Outcome

Probability

Stock W

Stock X

1

.10

+2%

+25%

2

.20

+18%

+10%

3

.40

+9%

+14%

4

.20

-12%

+3%

5

.10

+8%

-10%

a. What is the expected return for each stock?

b. What is the standard deviation for each stock?

c. What is the correlation between the stocks?

d. If you hold a portfolio of the stocks that is weighted 60% W, and 40% X, what is the expected return and standard deviation for the portfolio?

e. Assume that Stock X is actually the Market Portfolio.Calculate the Beta for Stock W.

Transcribed Image Text:

|Two stocks have the following possible outcomes: Outcome Probability Stock W Stock X 1 .10 +2% +25% 234 10 .20 +18% +10% .40 +9% +14% .20 -12% +3% 5 .10 +8% -10% a. What is the expected return for each stock? b. What is the standard deviation for each stock? c. What is the correlation between the stocks? d. If you hold a portfolio of the stocks that is weighted 60% W, and 40% X, what e. is the expected return and standard deviation for the portfolio? Assume that Stock X is actually the Market Portfolio. Calculate the Beta for Stock W. |Two stocks have the following possible outcomes: Outcome Probability Stock W Stock X 1 .10 +2% +25% 234 10 .20 +18% +10% .40 +9% +14% .20 -12% +3% 5 .10 +8% -10% a. What is the expected return for each stock? b. What is the standard deviation for each stock? c. What is the correlation between the stocks? d. If you hold a portfolio of the stocks that is weighted 60% W, and 40% X, what e. is the expected return and standard deviation for the portfolio? Assume that Stock X is actually the Market Portfolio. Calculate the Beta for Stock W.

Answer rating: 100% (QA)

a Expected Return for each stock Expected Return probability outcome 1 probability outcome For Stock W 010 x 2 020 x 18 040 x 9 020 x 12 010 x 8 97 Fo... View the full answer