Share
Explore BrainMass

Computation of Return, Variance and Beta

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.

Solution Preview

You are given the following joint probability distribution of returns:

State Probability Stock 1 Stock 2
Good 0.6 ...

Solution Summary

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

$2.19