Use the information in the table below for questions b) to e). The annual rate of...
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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. 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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Answer rating: 100% (QA)
b To calculate the expected rate of return ER for each stock multiply each rate of return by its cor... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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