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1
1. Return of Stock A and B
P Stock A B
1 20% 15% 9%
2 15% 10% 14%
3 30% 15% 21%
4 15% 13% 12%
5 20% 20% 18%
a) Calculate the expected return for Stock A and B
b) Calculate the variance for Stock A and B
c) Calculate the standard deviation for Stock A and B
d) Based on your answer in (c), which stock is riskier.
2. Amy is planning to invest in below portfolio option.
STOCK INVESTMEN RETURN BETA
1 150,000 10% 1.50
2 190,000 5% 1.25
3 99,000 11% 1.00
4 120,000 10% 0.50
5 130,000 15% 1.00
Based on the provided information, calculate:
a) Portfolio expected return b) Portfolio beta
Expert Solution
1-a). Expected return for stock A = 14.95%
For stock B = 15.60%
b). Variance for stock A = 0.000935
For stock B = 0.002094
c). Standard deviation for stock A = 3.06%
For stock B = 4.58%
d). Based on the standard deviation the stock B is riskier because the standard deviation for stock B is more than the stock A.
2-a). Portfolio expected return = 9.71%
b). Portfolio beta = 1.09
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