Calculate standard deviation of the returns of each company

Reference no: EM131970956

Question: You have estimated the returns of 2 companies for the next year depending on the general economic condition.

Outcome	Probability	Company 1	Company 2
Boom	30%	15%	5%
Normal	50%	5%	0
Recession	20%	0%	10%

(a) Calculate the expected return and standard deviation of the returns of each company.

(b) Calculate the covariance and correlation between the returns of these 2 companies.

(c) Let's combine these 2 companies 50%-50% in portfolio P. Calculate the expected return and the standard deviation of the portfolio P.

(d) Using mean-variance criterion, does any of the 3 investments, company 1, company 2, and portfolio P, dominate the other one?

Reference no: EM131970956

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