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Calculate the expected return on share

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The following table provides the share return forecasts and associated probabilities for X Coy. and Y Coy. Answer parts 'a' to 'c' using the information provided. Detailed worked solutions must be presented in your answers, including formulae used, progressive and final answers to the questions.

X coy y coy

Return % Probability% Return % Probability%

17.0 60 20.0 30

12.0 20 10.0 20

10.0 20 8.0 50

(a) Calculate the expected return on each share.

(b) Calculate the variance and standard deviation for each share.

(c) Suppose a portfolio comprised of 70% investment in X Coy. and 30% investment in Y Coy. can be constructed. An analyst has estimated that the correlation coefficient of the two-asset portfolio is -0.30, calculate the return and standard deviation of this portfolio. Compare your answer with those reported in parts a. and b. and draw your conclusion.

Reference no: EM132618773

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