You decide to invest in a portfolio consisting of 25 percent Stock A, 35 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? Return if State Occurs Probability of State of Economy State of Economy Stock A Stock B Stock C Bear 0.4 -12% 4% 1% Normal 0.2 5% 8% 8% Bull 0.4 28% 12% 17% OA. 8.80% O B. 9.16% OC.7.40%
You decide to invest in a portfolio consisting of 25 percent Stock A, 35 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? Return if State Occurs Probability of State of Economy State of Economy Stock A Stock B Stock C Bear 0.4 -12% 4% 1% Normal 0.2 5% 8% 8% Bull 0.4 28% 12% 17% OA. 8.80% O B. 9.16% OC.7.40%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 3P: Two-Asset Portfolio
Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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