What is the expected return on stock a and b

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Problem 1: In the bad economy, which happens 30% of the time, Stock A goes down by 5% and B goes down by 15%. In the good economy, which happens 70% of the time, Stock A goes up by 15% and B goes up by 20%. What is the expected return on stock A and B, respectively?

Option 1: 7.5%, 18.5%

Option 2: 7.5%, 10.5%

Option 3: 16.5 %, 10.5%

Option 4: 9.0 %, 9.5%

Option 5: None of the above are within 1 percentage point.

Problem 2: Using the information in 1, suppose a portfolio consists of 60% of stock A and 40% of stock B, what is the expected return of this portfolio?

Option 1: 7.5 %

Option 2: 13.3%

Option 3: 11.9%

Option 4: 9.2%

Option 5: 15.3%

Problem 3: Again using information in 1, what is the standard deviation of only stock B?

Option 1: 3.5%

Option 2: 4.25%

Option 3: 5.8%

Option 4: more than 15%

Option 5: less than 2.3%

Reference no: EM132882781

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