Bear |
Normal |
Bull |
|
Market |
Market |
Market |
|
Probability |
15.00% |
50.00% |
35.00% |
Stock X |
-12.00% |
10.00% |
21.00% |
Stock Y |
-22.00% |
14.00% |
39.00% |
3.d) Assume you have a $200,000 portfolio and you invest $70,000 in stock X and the remainder in stock Y. What is the expected return for this portfolio (8 points)?
CALCULATION OF THE EXPECTED RETURN FROM INVESTMENT IN STOCK X AND STOCK Y | |||||
Bear | Normal | Bull | Total | ||
Probability | 15% | 50% | 35% | ||
Stock X | -12% | 10% | 21% | ||
Expected Return | -1.800% | 5% | 7% | 10.55% | |
Stock Y | -22% | 14% | 39% | ||
Expected Return | -3.300% | 7.000% | 13.650% | 17.35% | |
CALCULATION OF THE EXPECTED RETURN FROM INVESTMENT IN PORTFOLIO | |||||
Stock | Weight (A) | Expected Return of Shares (B) | Expected return of portfolio (C = X B) | ||
Investment in Stock X | $ 70,000 | 35% | 10.55% | 3.69% | |
Investment in Stock Y | $ 1,30,000 | 65% | 17.35% | 11.28% | |
$ 2,00,000 | 100% | 14.97% | |||
Answer = Expected return of this portfolio = 14.97% | |||||
Bear Normal Bull Market Market Market Probability 15.00% 50.00% 35.00% Stock X -12.00% 10.00% 21.00% Stock...
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