Calculate the expected return and standard deviation

Assignment Help Financial Management

Reference no: EM131328851

You are given the following data on several stocks:

State of the Economy	Probability	Returns in Each State of Economy
State of the Economy	Probability	Gere Mining	Reubenfeld Films	DeLorean Automotive
Boom	25%	40%	24%	-20%
Expansion	50%	12%	10%	12%
Recession	25%	-20%	-12%	40%

a. Calculate the expected return and standard deviation for each stock.

b. Calculate the expected return and standard deviation for a portfolio invested equally in Gere Mining and Reubenfeld Films. How does the standard deviation of this portfolio compare to a simple 50-50 weighted average of the standard deviations of the two stocks?

c. Calculate the expected return and standard deviation for a portfolio invested equally in Gere Mining and DeLorean Automotive. How does the standard deviation of this portfolio compare to a simple 50-50 weighted average of the standard deviations of the two stocks?

d. Explain why your answers regarding the portfolio standard deviations are so different in parts (b) and (c).

Reference no: EM131328851

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