Question

Fina 300 Part Two 1.Using the probability distribution shown below, calculate Stock XYZs expected return, Elr), and standard deviation o (r). ession=0.45 X 012-4.5% ady = 0.35*0.12=4.27. on = 0.20 × 0,20= 4/ State of the Economy Recession Steady Boom Probability of Return in Economic Economic State State 45% -10% 35% 12% 20% 20% 2. Suppose that you invest your $300,000 in the following assets: Investment Beta Amount Stock A 1.2 $120,000 Stock B 0.96 $ 90,000 Stock C 1.30 $90,000 Calculate portfolio beta.

Answer 1

state of economy probability deviationA 2x probability deviation^2 Expected return Returns deviation Return (-) 3.70% (Return x probability) Recession -10% 45% 0.00845 -0.05 -0.14 0.02 Steady 12% 35% 0.04 0.08 0.01 0.00241 Boom 20% 20% 0.04 0.16 0,03 0.00531 3.70% Expected return 0.01617 Variance 12.72% [0.01617A 0.5] Standard deviation = variance^0.5