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1) Two stocks have the following possible outcomes: Outcome Probability Stock W Stock X 1
1) Two stocks have the following possible outcomes:
|
Outcome |
Probability |
Stock W |
Stock X |
|
1 |
.10 |
+2% |
+25% |
|
2 |
.20 |
+18% |
+10% |
|
3 |
.40 |
+9% |
+14% |
|
4 |
.20 |
-12% |
+3% |
|
5 |
.10 |
+8% |
-10% |
a. What is the expected return for each stock?
b. What is the standard deviation for each stock?
c. What is the correlation between the stocks?
d. If you hold a portfolio of the stocks that is weighted 60% W, and 40% X, what is the expected return and standard deviation for the portfolio?
e. Assume that Stock X is actually the Market Portfolio. Calculate the Beta for Stock W.
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