You are interested in investing in two different shares. The anticipated annual return for a $1,000 investment...

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You are interested ininvesting in two different shares. The anticipated annual returnfor a $1,000 investment in each share under different economicconditions is given below, together with the probability that eachof these economic conditions will occur.
Stateof
Returns
Probability
theeconomy
ShareX
ShareY
0.25
Recession
$240
-$100
0.5
Slow growth
$150
$150
0.25
High growth
-$100
$240
Calculate the expected return for share X and for share Y.
Calculate the standard deviation for share X and for shareY.
Would you invest $1000 in share X or share Y or are they bothequally desirable? Give a broad explanation of your answer.

Answer & Explanation Solved by verified expert

3.6 Ratings (484 Votes)

Solution a The expected return for share X is given as follows The expected return for share X is 110The expected return for share Y is given as follows The See Answer

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	Stateof	Returns
Probability	theeconomy	ShareX	ShareY
0.25	Recession	$240	-$100
0.5	Slow growth	$150	$150
0.25	High growth	-$100	$240