Question: Possible Outcome (% return) Economic Condition Probability (%) Share A Share B Boom 15 40 40 Good 10 15 20 Average 40 0 2 Poor
Possible Outcome (% return) Economic Condition Probability (%) Share A Share B Boom 15 40 40 Good 10 15 20 Average 40 0 2 Poor 15 -5 -15 Bust 20 -20 -30 A.) Calculate the expected return, variance, and standard Deviation of Share A and Share B B.) Calculate the beta of Share A if the expected return is 12.5%, and T-bonds yield 2.5% C.) Briefly explain how the concepts of total risk, unsystematic risk and systematic risk influence investment decisions. When is risk reduction through diversification most effective
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