# Expected Return and Standard Deviation of Returns on Stocks

State of the economy Probability End of Period Return

Stock A Stock B

Good 0.3 20% 21%

Average 0.5 16% 15%

Bad 0.2 11% 7%

1- What are the expected return and standard deviation of the returns on stocks A and B?

2- What is the expected return and standard deviation of a portfolio of 20% in A and 80% in B?

3- What is the expected return and standard deviation of a portfolio with 80% in A 4- Which one of the two portfolios should be selected by a risk averse investor? Why?

https://brainmass.com/business/options/expected-return-standard-deviation-returns-stocks-368155

#### Solution Preview

See the attached Excel file for all calculations.

The formulas we use are ...

#### Solution Summary

This solution shows the steps for determining the expected return and standard deviation of the return on a pair of stocks and portfolios.