3.) An investor is thinking of purchasing blue-chip stocks as part of his portfolio. At present, he is considering three blue chip stocks: Alpha, Bravo and Charlie. Based on the forecast of economists, there are three possible states of nature in the economy: growth, stagnation, recession, depression. Economists predicted that their respective probabilities are 0.25, 0.35, 0.30 and 0.10. Historical returns for the three blue chip stocks are summarized below: Stock Growth Stagnation Recession Depression Alpha 11% 3% -2% -20% Bravo 20% -1% -5% -3% Charlie 7% 2% 0% -5% (a) Determine the expected return for each stock. (b) Which stock is the riskiest using the standard deviation as a criterion? (c) Which stock is the least risky using the coefficient variation?
3.) An investor is thinking of purchasing blue-chip stocks as part of his portfolio. At present, he is considering three blue chip stocks: Alpha, Bravo and Charlie. Based on the forecast of economists, there are three possible states of nature in the economy: growth, stagnation, recession, depression. Economists predicted that their respective probabilities are 0.25, 0.35, 0.30 and 0.10. Historical returns for the three blue chip stocks are summarized below: Stock Growth Stagnation Recession Depression Alpha 11% 3% -2% -20% Bravo 20% -1% -5% -3% Charlie 7% 2% 0% -5% (a) Determine the expected return for each stock. (b) Which stock is the riskiest using the standard deviation as a criterion? (c) Which stock is the least risky using the coefficient variation?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter18: Savings,investment And The Financial System
Section: Chapter Questions
Problem 6PA
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