Homework answers / question archive / Du-Point asset management company intends to invest in two stocks with the following risk and return trade off; Probability Stock A Stock B 0

Du-Point asset management company intends to invest in two stocks with the following risk and return trade off; Probability Stock A Stock B 0

Finance

Share With

Du-Point asset management company intends to invest in two stocks with the following risk and return trade off;

Probability Stock A Stock B

0.1    33% 60%

0.2 20% 30%

0.4 15% 5%

0.3 0% -20%

Required

a) Calculate the expected return of each stock (3 Marks)

b) Calculate the risk of each stock ( 4 Marks)

c) Calculate coefficient of variation of each stock ( 2 Marks)

d) Calculate the expected return of the portfolio consisting of 50% of each stock

e) If you are risk averse investor which stock would you prefer to hold and why

f) Distinguish between systematic risk and un-systematic risk giving three examples in each case