Probability and standard deviation

by | Nov 17, 2021 | Homework Help

There are two stocks in the market, Stock A and Stock B. The price of Stock A today is $65. The price of Stock A next year will be $53 if the economy is in a recession, $73 if the economy is normal, and $85 if the economy is expanding. The probabilities of recession, normal, and expansion are 0.2,0.6, and 0.2 respectively. Stock A pays no dividends and has a beta of 0.68. Stock B has an Expected return of 13%, a standard deviation of 34%, a beta of 0.45 and a correlation with stock A of 0.48. The market portfolio has a standard deviation of 14%. Assume the CAPM holds.A. What are the expected return and standard Deviations of Stock A?B. If you are a typical, risk-averse investor with a well diversified portfolio, which stock would you prefer and why?C. What are the expected return and Standard deviations of a portfolio consisting of 60% stock A and 40% Stock B?D. What is the beta of the portfolio in (c)?Please show all work! It is important that i understand how to do this process.a.State of Probability Return of A RA- E(RA) (RAE(RA))2 P(RA- E(RA))2 EconomyRecession0.2-0.105-0.1610.00259210.0051842Normal0.60.070.0140.0001960.0001176Expansion0.20.1750.119…

Plagiarism-free and delivered on time!

We are passionate about delivering quality essays.

Our writers know how to write on any topic and subject area while meeting all of your specific requirements.

Unlike most other services, we will do a free revision if you need us to make corrections even after delivery.