Question
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Use the following scenario analysis for stocks X and Y to answer the questions. Bear Normal...
Use the following scenario analysis for stocks X and Y to answer the questions.
| Bear | Normal | Bull | |
| Market | Market | Market | |
| Probability | 20.00% | 45.00% | 35.00% |
| Stock X | -13.00% | 11.00% | 28.00% |
| Stock Y | -26.00% | 16.00% | 46.00% |
Assume you have a $200,000 portfolio and you invest $75,000 in stock X and the remainder in stock Y. What is the expected return for this portfolio?
Solutions
Expert Solution
| Probability (P) | Stock X (Xi) | Xi * P | Stock Y (Yi) | Yi * P |
| 20% | -13 | -2.6 | -26 | -5.2 |
| 45% | 11 | 4.95 | 16 | 7.2 |
| 35% | 28 | 9.8 | 46 | 16.1 |
| 12.15 | 18.1 | |||
| Therefore, | ||||
| Expected return of Stock X = 12.15% | ||||
| Expected return of Stock Y = 18.1% | ||||
| If $75000 out of $200000 is invested in Stock X and the remainder in Stock Y, | ||||
| Expected return of this portflio = 12.15 * ($75000/$200000) + 18.1 ($125000/$200000) | ||||
| = 4.56 + 11.31 | ||||
| = 15.87% |
jeff jeffy answered 2 years agoRelated Solutions
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