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Expected returns and deviations

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Reference no: EM133109472

1. Expected Returns and Deviations

State of the Economy Probability Return Stock A Return Stock B

Recession 0.3 -1.5% -12.0%

Normal 0.5 7.5% 15.5%

Expansion 0.2 18.0% 29.0%

a.) What is the expected return for each stock A and stock B?

b.) If an investor has $10,000 and invests 30% in Stock A and 70% in Stock B what is the expected total dollar return?

Stock Prices

year- Stock A Stock B

2015- 72.42 83.93

2016- 69.56 66.34

2017 - 63.75 70.93

2018 72.95 90.01

2019- 71.17 98.99

2020 - 110.74 107.68

c.) Calculate the yearly (2016, 2017, 2018, 2019, and 2020) percentage change return for Stock A and Stock B

2 d.) Based on the percentage returns calculated, what is the standard deviation and the coefficient of variation for Stock A and Stock B? Which one has the better riskreturn tradeoff?

e.) Assume you invest in both stocks (portfolio), what is the standard deviation and coefficient of variation? Is the portfolio a better option than investing in each stock individually?

Reference no: EM133109472

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