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Computation of Return, Variance and Beta

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You are given the following joint probability distribution of returns:

State Probability Stock 1 Stock 2
Good 0.6 20.0% 9.0%
Bad 0.4 8.0% -6.0%

Beta of stock 1=1.4
Beta of stock 2=0.6

a. Find the expected return on Stock 1,and Stock 2.
b. Find the variance of return on Stock 1, and Stock 2
c. Consider a portfolio that is invested 30 percent in Stock 1, 70 percent in Stock 2. Find the expected return on this portfolio.
d. Find the beta of this portfolio.

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Solution Summary

This shows the process of computation of return, variance and beta

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You are given the following joint probability distribution of returns:

State Probability Stock 1 Stock 2
Good 0.6 ...

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