Probability of State of State of Returns if State Occurs Economy Economy Stock X Stock Y Boom 25% 20% 18% Normal 50% 10% -3% Recession 25% Portfolio Weights Beta 105 Stock GEO

icon
Related questions
Question

3

There are three states of economy and you are given the following probabilities and retums for each stock for eacts state of economy You inmest
65% in stock x and 35% in steock Y. The betas for each stock are also given below.
Probability of
State of
State of
Returns if State Occurs
Economy
Economy
Stock X
Stock Y
20%
18%
Boom
Normal
25%
50%
10%
Recession
25%
5%
-3%
Portfolio Weights Beta
1.05
Stock
65%
35%
0.70
Calculate the expected return of the portfolio.
a.
b.
Calculate the standard deviation of the portfolio.
Is the systemic risk of the portfolio is more or less than the market? Please explain why.
C.
Please show all your calculations to gain partial points.
Transcribed Image Text:There are three states of economy and you are given the following probabilities and retums for each stock for eacts state of economy You inmest 65% in stock x and 35% in steock Y. The betas for each stock are also given below. Probability of State of State of Returns if State Occurs Economy Economy Stock X Stock Y 20% 18% Boom Normal 25% 50% 10% Recession 25% 5% -3% Portfolio Weights Beta 1.05 Stock 65% 35% 0.70 Calculate the expected return of the portfolio. a. b. Calculate the standard deviation of the portfolio. Is the systemic risk of the portfolio is more or less than the market? Please explain why. C. Please show all your calculations to gain partial points.
Expert Solution
steps

Step by step

Solved in 3 steps with 3 images

Blurred answer