You have been approached by Onua Do Ltd who wants to know how their portfolio is fairing. The Company has over the years spread their funds in this order: 30% stock in A, 50% stock in B and the rest in stock C.State of EconomyProbabilityStock A ReturnStock B ReturnStock C ReturnBoom0.1024%5%14%Normal0.7011%6%9%Recession0.20-30%7%-5%a). What is the standard deviation of their portfolio?b). Explain the following and analyze how they affects trading decision(s) making and analysis of investments:i) Snakebite effectii) House-money effectiii) Endowment effectiv) Disposition effectv) Overconfidence

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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You have been approached by Onua Do Ltd who wants to know how their portfolio is fairing. The Company has over the years spread their funds in this order: 30% stock in A, 50% stock in B and the rest in stock C.

State of Economy	Probability	Stock A Return	Stock B Return	Stock C Return
Boom	0.10	24%	5%	14%
Normal	0.70	11%	6%	9%
Recession	0.20	-30%	7%	-5%

a). What is the standard deviation of their portfolio?

b). Explain the following and analyze how they affects trading decision(s) making and analysis of investments:
i) Snakebite effect
ii) House-money effect
iii) Endowment effect
iv) Disposition effect
v) Overconfidence

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