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Finance: Portfolio returns, standard deviation etc

You have estimated the following probability distributions of expected future returns for Stock X and Y:

Stock X Probability Return Stock Y Probability Return
0.1 -10% 0.2 2%
0.2 10% 0.2 7
0.4 15% 0.3 12
0.2 20% 0.2 15
0.1 40% 0.1 16

a. What is the expected rate of return for Stock X? and Y?
b. What is the standard deviation of expected retruns for Stock X and Y?
c. Which stock would you consider to be riskier? Why?

The return expected fro Project No 542 is 22 percent. The standard deviation of these return is 11 percent. If returns from the project are normally distributed, what is the chance that the project will result in losses (negative rates of return)?

The expected rate of return for the stock of Cornhusker Enterprises is 20 percent, with a standard deviation of 15 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 9 percent.

a. Which stock would you consider to be riskier? Why?
b. If you knew that the beta coefficient of Cornhusker stock is 1.5 and the beta of Mustang is 0.9, how would your answer to Part A change?

An investor currently has all of his wealth in Treasury bills. He is considering investing one-third of his funds in General Electric, whose beta is 1.30, with the remainder left in Treasury bills. The expected risk-free rat (T-Bills) is 6 percent and the market risk permium is 8.8 percent. Determine the beta and the expected return on the proposed portfolio.

Thanks
Gail

Solution Summary

The problem set deal with issues in finance including portfolio returns, standard deviation etc

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