b) You are considering the two securities listed below.
Stock
Stock A
Stock B
Initial Investment
RM25,000
RM35,000
Economy Outcomes
Probability
Stock A
Returns
Stock B
Returns
Pessimistic
20%
5%
13%
Normal
50%
10%
8%
Optimistic
30%
15%
-15%
i)...
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Finance
b) You are considering the two securities listed below.
Stock
Stock A
Stock B
Initial Investment
RM25,000
RM35,000
Economy Outcomes
Probability
Stock A
Returns
Stock B
Returns
Pessimistic
20%
5%
13%
Normal
50%
10%
8%
Optimistic
30%
15%
-15%
i) Calculate the expected return for portfolio.
ii) Calculate the standard deviation of returns forportfolio.
iii) Justify why diversification work best for these stocks.
Answer & Explanation
Solved by verified expert
4.2 Ratings (540 Votes)
i Expected Return P1E1 P2E2 where P1 P2 are Probabilities andE1 E2 are ReturnsStock A Expected Return 0205 05010 03015 105Stock B
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