Probability of the state of economy Rate of return if state occurs Stokk SSS Recession 0.4 4%

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Probability of the state of economy

Rate of return if state occurs

Stokk SSS

Recession

0.4

Boom

0.6

18%

Consider following information.

a) Calculate the expected return of a stock.

b) Calculate the standard deviation of a stock return.

c) If the risk-free rate is 2% what is the expected portfolio return invested 75% in stock SSS and 25% in risk-free asset?

d) Discuss what do we mean by systematic and unsystematic risk. What is the effect of diversification?

Related Book For answer-question

Intermediate Financial Management

ISBN: 978-1111530266

11th edition

Authors: Eugene F. Brigham, Phillip R. Daves

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Posted Date: Feb 26, 2024 05:13 AM

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Probability of the state of economy Rate of return if state occurs Stokk SSS Recession 0.4 4%

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a To calculate the expected return of a stock we multiply the probability of each state of the economy by its corresponding rate of return and sum them up Expected return Probability of Recession Rate ... View the full answer

Intermediate Financial Management

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