An investor is considering the purchase of stock, which has returns given in the table below.

Scenario	Probability	Rate of Return
Recession	0.29	-2%
Normal Economy	0.41	6%
Boom	0.3	8%

E(r)=4.28

Std dev. =4.10

The investor decides to diversify by investing $4,000 in stock and $3,000 in Royal stock, which has an expected return of 5% and a standard deviation of 4.2%. The correlation coefficient for the two stocks' returns is 0.6.

E(rp)=4.59

Std. Dev=3.71

Suppose the investor decides to invest an additional $2,000 in a treasury bill yielding 2.5%. What will be the expected return and standard deviation of this portfolio.

Round your answers to 2 decimal places.

Answer rating: 100% (QA)

To find the expected return of the portfolio we need to calculate the weighted average of the expect... View the full answer