Calculate expected return and standard deviation of stock

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Reference no: EM131952295

Advanced Financial Management Homework-

Q1. GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows:

State of Economy	Probability	GenLabs Returns
Depression	.05	-50%
Recession	.10	-15
Mild Slowdown	.20	5
Normal	.30	15%
Broad Expansion	.20	25
Strong Expansion	.15	40

Please calculate the expected return and standard deviation of the stock.

Q2. A year ago, an investor invested $4,000 in the stock of IBM, $4,000 in the stock of GE, and $2,000 in the stock of Microsoft. The rate of return is 10% for IBM, 12% for GE, and 15% for Microsoft. How much is the overall rate of return for the portfolio?

Q3. Consider a portfolio that is composed of the following two securities:

	Security A	Security B
Expected return	5%	10%
Standard deviation	6%	12%

(1) If you allocate 40% into A and 60% into B, how much is the expected return on the portfolio?

(2) If you allocate 30% into A and 70% into B, how much is the expected return on the portfolio?

Reference no: EM131952295

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