Question

Consider the following investment options along with the designated probability distribution of returns for each: Economic state Probability of occurrence T-Bill Stock A Stock B Very poor 0.1 5.5% (15)% 30% Poor 0.2 5.5% 5% 20% Average 0.4 5.5% 17% 10% Good 0.2 5.5% 20% 0% Very good 0.1 5.5% 35% (10)% The expected return of stock B is 10%. The standard deviation of stock A is 12.46%. a) What's the expected return of stock A? b) What's the standard deviation of stock B? c) Construct and equal investment portfolio of stock A and stock B and calculate the portfolio's expected return

Answer 1