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    Probability: Which Portfolio Would You Recommend?

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    You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1000 investment in each stock has, in your opinion, the following probability distribution:

    Returns:

    Probability Stock A Stock B
    0.1 -$100 $50
    0.3 $0 $150
    0.3 $80 -$20
    0.3 $150 -$100

    Suppose you want to create a portfolio that consists of stock A and stock B. Compute the portfolio expected return and portfolio risk for each of the following percentages invested in stock A:

    a) 30%
    b) 70%

    On the basis of the results of the above answers, which portfolio would you recommend? Explain.

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    https://brainmass.com/statistics/probability/probability-portfolio-recommend-338179

    Solution Preview

    See the attached file.

    You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1000 investment in each stock has, in your opinion, the following probability distribution: Return
    Probability Stock A Stock B
    0.1 ...

    Solution Summary

    This solution provides an explanation for the portfolio recommendation.

    $2.19

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