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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Solution Summary
This solution provides an explanation for the portfolio recommendation.
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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: Return
Probability Stock A Stock B
0.1 ...
Purchase this Solution
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