Calculate the expected return of each stock

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Reference no: EM132033315

	Probability of the state of economy	Rate of return if state occurs
	Probability of the state of economy	StockA StockB		StockC
boom	0,2	0,4	-0,04	0,12
good	0,3	0,2	0,05	0,08
poor	0,4	0,04	0,1	0,02
bust	0,1	-0,06	0,14	0

a. Calculate the expected return of each stock.

b. Calculate the variance and standard deviation of each stock.

c. Calculate the expected return of the portfolio (Portfolio1) consisting 40% of stock A, 40% of stock B and 20% of stock C.

d. Calculate the variance and standard deviation of this portfolio.

e. Consider an alternative portfolio (Portfolio2) 40% of stock A, 20% of stock B, 10% of stock C and 30% in the risk-free asset. Risk-free asset expected return is 2%. What is this portfolio's expected return, variance and standard deviation?

f. Based on CAPM calculate each stock beta if market risk premium is 5%.

g. Which stock has the lowest systematic risk? Which stock has the lowest total risk? Which stock is "safest"? Explain.

h. What is the beta of the Portfolio1 and Portfolio2?

Reference no: EM132033315

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