Purchase Solution

Expected Returns and Standard Deviations for Two Stocks

Not what you're looking for?

Ask Custom Question

Two Stocks, X and Y, have three states of nature based on the state of the economy:

State of Economy Probability Stock X Return Stock Y Return

Recession 0.10 -0.20 0.30

Normal 0.60 0.10 0.20

Boom 0.30 0.70 0.50

1. What are the expected returns and standard deviations for these two stocks?

2. Suppose you have $20,000 total. If you put $6,000 in X and the remainder in Y,

what will be the expected return and standard deviation on your portfolio be?

Purchase this Solution

Solution Summary

This posting gives a detailed step-by-step response to the student's question.

Solution Preview

1. What are the expected returns and standard deviations for these two stocks?

kX = 0.1 x (-20) + 0.6 x 10 + 0.3 x 70 = 25 %

kY = 30%

St. Dev X = [(20 - 25)2 + x 0.10 + (10 - 25)2 + x ...

Purchase this Solution


Free BrainMass Quizzes
Lean your Process

This quiz will help you understand the basic concepts of Lean.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)