Two stocks, stock A and B, are available in the

Two stocks, stock A and B, are available in the stock market. The price of the stock A today is $50. The price of stock A next year will be $40 if the economy is in a recession, $55 if the economy is normal, and $60 if the economy is expanding. The probabilities of recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Stock A pays no dividends and has a correlation of 0.8 with the market portfolio. Stock B has an expected return of 9 percent, a standard deviation of 12 percent, a correlation with the market portfolio of 0.2 and a correlation with stock A of 0.6. The market portfolio has a standard deviation of 10 percent. Assume CAPM holds.

Required:

  1. If you are a typical risk-averse investor with a well-diversified portfolio which stock would you prefer? Why?

  1. What are the expected return and standard deviation of a portfolio consisting of 70 percent of stock A and 30 percent of stock B?

  1. What are your considerations if you would like to include additional stocks in your investment portfolio? Explain briefly.
  1. You believe that stock market is efficient, and investors are not able to generate abnormal return from the market. Explain your possible strategies based on your belief.

How Our Website Works

1. FILL IN OUR SIMPLE ORDER FORM

It has never been easier to place your order. Fill in the initial requirements in the small order form located on the home page and press “continue” button to proceed to the main order form or press “order” button in the header menu. Starting from there let our system intuitively guide you through all steps of ordering process.

2. PROCEED WITH THE PAYMENT

All your payments are processed securely through PayPal. This enables us to guarantee a 100% security of your funds and process payments swiftly.

3. WRITER ASSIGNMENT

Next, we match up your order details with the most qualified freelance writer in your field.

4. WRITING PROCESS

Once we have found the most suitable writer for your assignment, they start working on a masterpiece just for you!

5. DELIVERY

Once finished, your final paper will be available for download through your personal dashboard. You will also receive an email notification with a copy of your paper attached to it. Sometimes, the writer may leave a note for you about the order in case there is any additional information that they need to give you.

Leave a Reply

Your email address will not be published.