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  3. b) you are considering the two securities listed b

b) You are considering the two securities listed below. Stock Stock A Stock B Initial Investment RM25,000 RM35,000 Economy Outcomes Probability Stock A Returns Stock B Returns Pessimistic 20% 5% 13% Normal 50% 10% 8% Optimistic 30% 15% -15% i)...

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Question

Finance

b) You are considering the two securities listed below.

StockStock AStock B
Initial InvestmentRM25,000RM35,000
Economy OutcomesProbability

Stock A

Returns

Stock B

Returns

Pessimistic20%5%13%
Normal50%10%8%
Optimistic30%15%-15%

i) Calculate the expected return for portfolio.

ii) Calculate the standard deviation of returns forportfolio.

iii) Justify why diversification work best for these stocks.

Answer & Explanation Solved by verified expert
4.2 Ratings (540 Votes)
i Expected Return P1E1 P2E2 where P1 P2 are Probabilities andE1 E2 are ReturnsStock A Expected Return 0205 05010 03015 105Stock B    See Answer
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