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Return and Risk for Portfolio Assignment | Homework For You

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January 30th, 2020

Probability distribution for the one year holding-period return of two stocks. Assume that risk-free rate is 1% and the correlation between A and B is 0.8.Homework For You

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State of Economy Probability Return Stock A Return Stock B
Recession 40% -9% -5%
Normal 35% 11% 20%
Boom 25% 22% 15%

 

U = E(r) – 0.5As2

  1. Find the expected returns and standard deviation for each stock.
  2. Assume 14% in Stock A and 86% in Stock B is the optimal weights for a portfolio P based on these two risky stocks, what is the return and risk for portfolio P?
  3. Assume that the client with risk aversion of 6 wants to allocate his money on risk-free asset and on the risky portfolio P. How should the client allocate the money between the risky portfolio P and the risk-free rate?
  4. What is the expected rate of return and risk on a complete portfolio C that includes risk-free and a portfolio P? Get Finance homework help today

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