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of retu State of Economy Вoom Normal Recession Probability .40 .30 Asset A 30% 0% -20% Asset B 20% 15% -10% .30

of retu State of Economy Вoom Normal Recession Probability .40 .30 Asset A 30% 0% -20% Asset B 20% 15% -10% .30

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 5PROB
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level of retu State of Economy Probability .40 .30 .30 Asset A 30% Boom Normal Recession Asset B 20% 15% -10% 0% -20%
Transcribed Image Text:level of retu State of Economy Probability .40 .30 .30 Asset A 30% Boom Normal Recession Asset B 20% 15% -10% 0% -20%
Boom Probability Asset A Asset B 20% 15% Normal .40 30% Recession .30 0% -20% .30 -10% Determine the following: (i) expected value, (ii) standard deviation and (iii) coefficient of variation for each asset. (Remember your decision is based on the fact that you are a risk-averse person). b. Imagine that you have decided to buy a portfolio consisting of 20 percent of stock A and 80 percent of stock B. What is the (i) expected return on this portfolio? And (ii) the standard deviation? (iii) Did you make the right decision and why (considering you are a risk-averse person)? art a: ) Expected Value (for each asset): sset A:
Transcribed Image Text:Boom Probability Asset A Asset B 20% 15% Normal .40 30% Recession .30 0% -20% .30 -10% Determine the following: (i) expected value, (ii) standard deviation and (iii) coefficient of variation for each asset. (Remember your decision is based on the fact that you are a risk-averse person). b. Imagine that you have decided to buy a portfolio consisting of 20 percent of stock A and 80 percent of stock B. What is the (i) expected return on this portfolio? And (ii) the standard deviation? (iii) Did you make the right decision and why (considering you are a risk-averse person)? art a: ) Expected Value (for each asset): sset A:
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