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An investor buys 1 share of ABC Ltd at the price of $32 on December 1,...

An investor buys 1 share of ABC Ltd at the price of $32 on December 1, 2019. The firm is not expected to pay any dividends. Consider the following three possible scenarios for the share price on December 1, 2020: $50 with a probability of 20% $34 with a probability of 50% $27 with a probability of 15% $20 with a probability of 15% a) Calculate the expected return for holding the share for a year. b) Calculate the variance of return and standard deviation of return. c) Explain the concept of diversification. Explain the benefit of diversification and how it works. d) “The standard deviation of a portfolio's return can be reduced to zero by holding all the securities in the market.” True or false? Explain.

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jeff jeffy answered 1 year ago
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