Problem 2-5 Expected Return: Discrete Distribution

A stock's return has the following distribution:

Demand for the Company's Products	Probability of This Demand Occurring			Rate of Return if This Demand Occurs (%)
Weak		0.1		-45%
Below average		0.2		-6
Average		0.4		10
Above average		0.2		20
Strong		0.1		65
		1.0

Calculate the stock's expected return. Round your answer to two decimal places. %

Calculate the standard deviation. Round your answer to two decimal places. %

Problem 2-10 Portfolio Required Return

Suppose you manage a $4.225 million fund that consists of four stocks with the following investments:

Stock	Investment		Beta
A	$400,000		1.50
B	475,000		-0.50
C	1,500,000		1.25
D	1,850,000		0.75

If the market's required rate of return is 11% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

%

Problem 2-13 Historical Realized Rates of Return

You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stocks A and B have the following historical returns:

Year
2011	-18.50%	-12.40%
2012	22.00	17.10
2013	10.00	35.00
2014	-4.25	-8.10
2015	24.25	1.90

1. Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.

   Stock A	%
   Stock B	%

2. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Round your answers to two decimal places.

   Year	Portfolio
   2011	%
   2012	%
   2013	%
   2014	%
   2015	%
   Average return	%

3. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places. Enter negative returns with a minus sign.

   	rA	rB	Portfolio
   Std. Dev.	%	%	%