Question: Use the information in the table below for questions b) to e). The annual rate of return and related probabilities for each security are
Use the information in the table below for questions b) to e). The annual rate of return and related probabilities for each security are given. Stock A Rate of Return 10% 14% 18% Probability 30% 35% 35% Stock B Rate of Return 5% 15% 25% b. Calculate the expected rate of return, E(R), for each stock. c. Calculate the standard deviation, o, for each stock. Probability 25% 30% 45% d. Which stock should you purchase? Explain why you make such choice. e. Imagine that you will make a portfolio that consists of 60% of Stock A and 40% of Stock B, assuming the correlation coefficient between A and B (PAB) is -0.35. Based on the answer you obtained from b) and c), calculate the expected return, E(Rp), and standard deviation, op, of your portfolio.
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b To calculate the expected rate of return ER for each stock multiply each rate of return by its cor... View full answer
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