Compute expectations and variances of the total dollar

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Reference no: EM13638331

Shares of company A cost $10 per share and give a profit of X%. Independently of A, shares of company B cost $50 per share and give a profit of Y%. Deciding how to invest $1,000, Mr. X chooses between 3 portfolios:

(a) 100 shares of A,

(b) 50 shares of A and 10 shares of B,

P{X = -3} = 0.3, P{X = 0} = 0.2, P{X = 3} = 0.5.

The distribution of Y is given by probabilities:

P{Y = -3} = 0.4, P{Y = 3} = 0.6.

Compute expectations and variances of the total dollar profit generated by portfolios (a), (b), and (c). What is the least risky portfolio? What is the most risky portfolio?

Reference no: EM13638331

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