Question

After a tumultuous period in the stock​ market, Logan Morgan is considering an investment in one of two portfolios. Given the information that​ follows, which investment is​ better, based on risk​ (as measured by the standard​ deviation) and return as measured by the expected rate of​ return?

Portfolio A		Portfolio B
Probability	Return	Probability	Return
0.15	−3​%	0.08	4​%
0.50	17​%	0.28	10​%
0.35	23​%	0.42	11​%
		0.22	15​%

a. What is the expected rate of return and standard deviation for portfolio​ A?

b. What is the expected rate of return and standard deviation for portfolio​ B?

c. Based on the risk​ (as measured by the standard​ deviation) and return as measured by the expected rate of return of each​ stock, which investment is​ better?

Answer 1