• Calculate the expected return and standard deviation of for single stocks and portfolio

You have estimated the following probability distributions of expected future returns from stocks X and Y:

• What is the expected return for stock X and Y?

Expected return of X = ??

Expected return of Y = ??

• What is the standard deviation of expected returns for stock X and Y?

Standard deviation of X = ??

Standard deviation of Y = ??

• Calculate the expected return and standard deviation of the mix of 50% X and 50% Y.

Expected return of the mix of 50% X + 50% Y = ??

Which stock would you consider to be riskier, X, Y, or 50% X + 50% Y? Why? (hint: calculate the coefficient of variation (COV) = standard deviation / expected return and compare.) Hints: please study the slides for the explanation of calculations.

Cov of X = ??

Cov of Y = ??

Cov of ( 50% X + 50% Y) = ??

Which do you pick? ---- ??