RISK AND RETURN

(A) Consider the expected return and standard deviation of these four stocks (chart below). If investors are buying only one stock, which one of these stocks would no investor buy? Why? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

STOCK	EXPECTED RETURN	STANDARD DEVIATION
A	6%	1%
B	7%	1.5%
C	7%	2%
D	8%	2%

ADDING AN ASSET TO A PORTFOLIO -

(B) Your current portfolio's cash returns over the past three years look like this:

	YEAR 1	YEAR 2	YEAR 3	E(CF)	o
Your Portfolio CF's	120	100	80	100	20

The past three years are representative of a good year, an average year, and a bad year for you. You are considering adding one of these two equally priced assets to your portfolio:

	YEAR 1	YEAR 2	YEAR 3	E(CF)	o
New Asset 1	6	6	6	6	0
New Asset 2	2	6	10	6	4

Which asset would be best for you? Calculate the portfolio expected return, variance, and standard deviation when adding each new asset? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).