Question: PLEASE ANSWER FAST! I WILL GIVE THUMBS UP! PLEASE SHOW WORK!! I. (30 points) Suppose that the rate of returns on Stock A and Stock
I. (30 points) Suppose that the rate of returns on Stock A and Stock B are projected based on economic outlook next year in Table below. Further suppose that you have $100,000 for investments. Diversification is important in investing. Therefore, you divide equally the investment money into two stocks: Stock A and Stock B. Based on this setup, compute the expected returns on the portfolio of Stock A and Stock B (15 points). Compute your portfolio risk (15 points). Use the following formulae. rA(expectedvalueofstockA)=(rABad)PBaal+(rACood)PGooslpf2=WA2A2+WB2B2+2WAWBCov(A,B)Cov(A,B)=((ABadrA)(rBBadrB)PBad+(rACoodrA)(rBGoodrB)PCood Where WA= the weight of your investment in Stock A;rA= the expected return on Stock A;pf2 is the variance of the portfolio of Stock A and Stock B; A is the standard deviation of returns on Stock A. A2 is the variance of returns on Stock A; PBad is the probability of "bad" economic condition in the future. rACood is the expected return on Stock A if the economic condition is good in the future. Similar letter notations were applied to Stock B
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