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Expected return-standard deviation for common stocks

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The analysis of outcomes for sales and the associated rate of return on common stocks for companies X and Y are shown below. You intend to form a portfolio by allocating $3750 of your total wealth of $5000 in Company X, and the remainder in Company Y. The covariance between the two companies is -.000927.

Declining                   flat                 rising

Probability                 40%                            25%                35%

% return X                 -0.4%                         10.8%             21.7%

% return Y                 5.2%                           18.3%             23.5%

a) What is the expected return and standard deviation for common stocks in each company? Work can be done via calculator or excel

b. What is the portfolio return and standard deviation for this two-stock portfolio? In words, how does this compare with the individual returns and std. deviations of the stocks?

Reference no: EM132484364

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