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The common stock of Escapist Films sells for $39 a share and offers the following payoffs...

The common stock of Escapist Films sells for $39 a share and offers the following payoffs next year:

                            

Probability Dividend Stock Price
Boom 0.4 $0 $20
Normal economy 0.4 $2 $30
Recession 0.2 $7 $44
Calculate the expected return and standard deviation of Escapist. (Round your answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.)
Expected rate of return      %
Standard deviation     %
The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year:
Probability Dividend Stock Price
Boom 0.4 $6 $200
Normal economy 0.4 $2 $116
Recession 0.2 $0 $4

                    

The stock is selling today for $95.
Calculate the expected return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. (Round your answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.)
Expected return of portfolio       %
Standard deviation of portfolio      %
Why is the portfolio standard deviation lower than for either stock’s individually?
The portfolio standard deviation is lower than for either stock’s individually because

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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