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Consider the following probability distribution for stocks A and B:

State Probability Return on Stock A Return on Stock B

1 30% 10% 11%

2 40% 15% 12%

3 30% 18% 15%

1) What are the expected rates of return of stocks A and B respectively?

2) What are the standard deviations of stocks A and B respectively?

3) If you invest 50% of your money in A and 50% in B, what would be your portfolio's expected rate of return and standard deviation (assume the coefficient of correlation between A and B = 0.895)?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M947292

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