An investment firm is considering a portfolio of equal weighting in a cyclical stock, C and...

 

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An investment firm is considering a portfolio of equal weighting in a cyclical stock, C and a countercyclical stock, N. The firm has $20,000 to invest. It is expected that there will be three economic states: Good, Average, and Bad, each with equal probability of occurrence. The table below shows the dollar return for stock C and the percentage return for stock N under the different economic states. Using this information please answer the following questions: State of economy Good Average Bad Expected return Standard deviation Return for stock C $1,200 $500 $100 ?? % 5.57% Return for stock N -8% 2% 14% 2.67% ?? % a. What is the expected return for stock C? (2 pts) b. What is the standard deviation of the returns of stock N? (3 pts) c. What is the expected return of this portfolio? (2 pts) d. What is the covariance of the return between the stocks C and N? (3 pts) e. What is the standard deviation of the portfolio? (2 pts) f. Instead of investing in stock C and N, the firm would like to invest equal amounts in stock C and government of Canada treasury bills. What would be the standard deviation of the resulting portfolio? (2 pts) An investment firm is considering a portfolio of equal weighting in a cyclical stock, C and a countercyclical stock, N. The firm has $20,000 to invest. It is expected that there will be three economic states: Good, Average, and Bad, each with equal probability of occurrence. The table below shows the dollar return for stock C and the percentage return for stock N under the different economic states. Using this information please answer the following questions: State of economy Good Average Bad Expected return Standard deviation Return for stock C $1,200 $500 $100 ?? % 5.57% Return for stock N -8% 2% 14% 2.67% ?? % a. What is the expected return for stock C? (2 pts) b. What is the standard deviation of the returns of stock N? (3 pts) c. What is the expected return of this portfolio? (2 pts) d. What is the covariance of the return between the stocks C and N? (3 pts) e. What is the standard deviation of the portfolio? (2 pts) f. Instead of investing in stock C and N, the firm would like to invest equal amounts in stock C and government of Canada treasury bills. What would be the standard deviation of the resulting portfolio? (2 pts)