Snowflake Inc.’s stock can return either -10% or 20% annually with equal probability, and Peloton Inc’s stock can return either -15% or 25% annually with equal probability. The correlation between Snowflake and Peloton’s stock returns is 0. You have $100
1. Snowflake Inc.’s stock can return either -10% or 20% annually with equal probability, and Peloton Inc’s stock can return either -15% or 25% annually with equal probability. The correlation between Snowflake and Peloton’s stock returns is 0. You have $100 to invest, and you decide to build a portfolio P which invests $50 in Snowflake and $50 in Peloton.
a. What is Snowflake’s expected return?
b. What is Snowflake’s standard deviation?
c. What is portfolio P’s expected return?
d. What is portfolio P’s standard deviation? Instead of splitting $100 equally in Snowflake and Peloton, you invest $100 in Snowflake for the first year, and then you sell Snowflake and use the proceeds to invest in Peloton for the second year.
e. What is your expected return after two years?
f. What is the standard deviation of your return after two years?
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Snowflake Inc.’s stock can return either -10% or 20% annually with equal probability, and Peloton Inc’s stock can return either -15% or 25% annually with equal probability. The correlation between Snowflake and Peloton’s stock returns is 0. You have $100
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