In: Accounting
Stocks X and Y have the following probability distributions of expected returns for four possible economic states.
Economy State | Probability | Stock X | Stock Y |
1 | 0.1 | -8% | 5% |
2 | 0.4 | -10% | 8% |
3 | 0.4 | 9% | -2% |
4 | 0.1 | 14% | -10% |
e. Calculate the two-stock portfolio’s standard deviation.
f. Calculate the two-stock portfolio’s beta.
g. If the overall market return is 8% and the risk-free rate is 1%, what is the two-stock portfolio’s required return?
h. How can you reallocate t