Question: As an investment analyst, you developed following expectations about stocks A and B. To enjoy diversification, you decided to invest your capital in A and

  1. As an investment analyst, you developed following expectations about stocks A and B. To enjoy diversification, you decided to invest your capital in A and B by 40-60 percent respectively.

Expected return

Year

Stock A

Stock B

2022

14%

20%

2023

14

18

2024

16

16

2025

17

14

2026

17

12

2027

19

10

Required:

  1. Estimate expected return of portfolio for whole period of 2022-2027. (8 marks)
  2. Estimate standard deviation of portfolio return over the whole period. (4 marks)
  3. Estimate coefficient of variation for each alternative over whole period. (4 marks)

Based on your above answer, if you decide to invest in only one of above stocks, which alternative do you choose? Why? (2 marks)

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