Question 4 Investor constitutes a portfolio by investing equal proportions in stocks A and B. Financial Situation
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Question 4
Investor constitutes a portfolio by investing equal proportions in stocks A and B.
Financial Situation Probability Return Stock A Return Stock B
Good 0.4 20% 10%
Stable 0.4 5% 0%
Bad 0.2 - 5% 20%
(i) Calculate the expected rate of return of the portfolio.
(ii) Calculate the covariance between the returns of stocks A and B.
(iii) Calculate the risk of the portfolio.
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
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