State of the economy Probability End of Period Return Stock A Stock B good 0.3 2

State of the economy
Probability
End of Period Return Stock A
Stock B
good
0.3
20%
21%
average
0.5
16%
15%
bad
0.2
11%
7%
a. What are the expected return and standard deviation of the returns on stocks A and B?
b. What is the expected return and standard deviation of a portfolio of 20% in A and 80% in B?
c. What is the expected return and standard deviation of a portfolio with 80% in A and 20% in B?
d. Which one of the two portfolios should be selected by a risk averse investor? Why?
Question 2 (Worth 25 Pts.) Given the following:State of the economy
Probability
End of Period Return
Stock A
Stock B
good
0.3
20%
21%
average
0.5
16%
15%
bad
0.2
11%
7%
What are the expected return and standard deviation of the returns on stocks A and B?
What is the expected return and standard deviation of a portfolio of 20% in A and 80% in B?
What is the expected return and standard deviation of a portfolio with 80% in A and 20% in B?
Which one of the two portfolios should be selected by a risk averse investor? Why?1Question 2 (Worth 25 Pts.) Given the following:State of the economy
Probability
End of Period Return
Stock A
Stock B
good
0.3
20%
21%
average
0.5
16%
15%
bad
0.2
11%
7%
What are the expected return and standard deviation of the returns on stocks A and B?
What is the expected return and standard deviation of a portfolio of 20% in A and 80% in B?
What is the expected return and standard deviation of a portfolio with 80% in A and 20% in B?
Which one of the two portfolios should be selected by a risk averse investor? Why?1
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