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Look at the tabel showing return of stock X and stock Y in three scenarios...

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Finance

Look at the tabel showing return of stock X and stock Y in three scenarios (Expansion, Normal, and Recession). The probability of each scenario is given in the table.

Probability x y
E 35% 15% 1%
N 45% 8% 1%
R 35% -5% 1%

You are considering 3 different portfolios as investment opportunities:

Portfolio 1: 10% in stock X and 90% in stock Y

Portfolio 2: 20% in stock X and 80% in stock Y

Portfolio 3: 30% in stock X and 70% in stock Y

What are the expected returns on portfolios 1, 2 and 3?

What are the standard deviations on portfolios 1, 2 and 3s returns?

In which of these portfolios should a investor invest in and why?

Show calculations

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