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Calculate standard deviation of returns for each stock

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Reference no: EM131276750

Describe the relationship between risk and return

Question (1):

Assume a two-stock portfolio with $40,000 invested in company X and $60,000 invested in company Z.

 

 

Estimated Return

Economy

Probability

X(ri)

Z(ri)

Portfolio(ri)

Strong

0.30

15%

25%

12%

Normal

0.50

10%

13%

10%

Weak

0.20

-8%

-15%

-7%

Total

1.00

 

 

 

1. Calculate the expected rate of return for each stock separately.

2. Calculate the expected rate of return for the portfolio.

3. Calculate the standard deviation (s) of returns for each stock separately.

4. Calculate the standard deviation (s) of returns for the portfolio.

5. Was investing in the previous portfolio helpful to decrease the risk of investing in each stock separately? Explain.

Verified Expert

This assignment deals with risk and return analysis for individual stocks vis-a-vis portfolio investment. It requires calculating the expected return on individual stock investments as well as the standard deviation of returns to measure the associated risk. Further, the same is compared to the expected return and standard deviation of a portfolio in order to analyse the risk differential between the two.

Reference no: EM131276750

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