Finance Assignment | Professional Writing
May 30th, 2020
The table below presents the state-based returns of securities A and B, the risk-free security and the market portfolio, where p is the probability of each state. Use the information therein to answer parts a and b.
|
State |
p |
Security A |
Security B |
Risk-free security |
Market portfolio |
|
Recession |
0.5 |
-4% |
44% |
2% |
-6% |
|
Normal |
0.4 |
10% |
-10% |
2% |
20% |
|
Boom |
0.1 |
40% |
-30% |
2% |
30% |
- Calculate the expected return and its standard deviation of securities A and B.
- Suppose you borrow $30,000 at the risk-free rate and along with the $60,000 you have, you invest $15,000 in security A and $75,000 in security B. Calculate the expected return, its standard deviation and the CAPM-implied beta of this portfolio.
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