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The following represents the probability distribution of future returns for stock A and stock B. State...

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Finance

The following represents the probability distribution of futurereturns for stock A and stock B. State of Economy ProbabilityReturn on Security A Return on Security B Boom 0.20 18% 4% Normal0.60 8% 8% Recession 0.20 ?4% 12%

a. What is the expected return for Security A and SecurityB?

b. What is the expected return on a portfolio consisting of 50%investment in Security A and 50% in security B?

c. What is the standard deviation of a portfolio consisting of50% investment in Security A and 50% in security B?

Answer & Explanation Solved by verified expert
4.0 Ratings (711 Votes)
a Stock A Scenario Probability Return rate of return probability Boom 02 18 36 Normal 06 8 48 Recession 02 4 08 Expected return sum of weighted return 76 Stock B Scenario Probability Return rate of return probability Boom 02 4 08 Normal 06 8 48 Recession 02 12 24 Expected return sum of    See Answer
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The following represents the probability distribution of futurereturns for stock A and stock B. State of Economy ProbabilityReturn on Security A Return on Security B Boom 0.20 18% 4% Normal0.60 8% 8% Recession 0.20 ?4% 12%a. What is the expected return for Security A and SecurityB?b. What is the expected return on a portfolio consisting of 50%investment in Security A and 50% in security B?c. What is the standard deviation of a portfolio consisting of50% investment in Security A and 50% in security B?

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