Advise huron as to the effectiveness of his diversification

Assignment Help Finance Basics

Reference no: EM133223782

Question 1: An investor wishes to add new stocks to her portfolio. She has information about two assets, Stock A and Stock B. Stock A has a beta of 1.25 and an expected return of 20%.

Stock B has a beta of 0.9 and expected return of 15%. The risk-free rate is 4.5% and the market risk premium is 15%.

Which of these stocks, if any, would you advise the investor to purchase?

Question 2. Huron has been told that diversifying his investments will significantly reduce risk. He has therefore invested in two stocks. His portfolio consists of a $1 500 000 investment in Drugs Limited and $750 000 invested in shares of Pharmaceuticals Limited.

Economy Probability Returns

Drugs Limited Pharmaceuticals
Limited
Boom 0.4 12% 19%
Normal 0.5 8% 11%
Recession 0.1 2% -4%

i. What is the expected return on Huron's portfolio?
ii. Advise Huron as to the effectiveness of his diversification strategy.

Reference no: EM133223782

Questions Cloud

Creating opportunities for an omnichannel strategy : Technology advancement now allows consumers to shop online and offline, creating opportunities for an omnichannel strategy.

Discuss social media information systems : Select an organization or business with which you are familiar and discuss how social media information systems can advance organizational strategy.

Which are driving transformation of b2b sales structure : Identify and explain the four key shifts described in the article which are driving the transformation of the B2B sales structure.

Analyze current data mining practices : Analyze current data mining practices and evaluate the pros and cons of data mining. Provide one example of a company that has successfully practiced data

Advise huron as to the effectiveness of his diversification : Which of these stocks, if any, would you advise the investor to purchase and Advise Huron as to the effectiveness of his diversification strategy

Compare brand voice for brand and for the competition : Identify the top 3 major differences/things that stand out when comparing current brand presence between the organizations.

Explain risk management and its types : Explain Risk management and its types. Support each type with an example and a way to mitigate the respective risk. Don't exceed more than 25 - 30 lines.

Mental health examination discussion - define malingering : Define malingering. Discuss two ways to differentiate between malingering and a DSM5 diagnosis. Use evidence-based research to support your position

Why do project managers need critical thinking skills : 1-Developing your critical thinking skills means building habits that follow you throughout your project management career.

User Account

All Pages