Question
In: Finance
After graduating from Yorkville University with a BBA you are making a good salary and now...
After graduating from Yorkville University with a BBA you are
making a good salary and now want to begin investing. You are
analyzing two Canadian Banks as investment options. Bank of Nova
Scotia (BNS) and Bank of Montreal (BMO). The stock price of BNS is
current $65. The price of BNS next year will be $53 if the economy
is in a recession, $73 if the economy is normal, and $85 if the
economy is expanding. The likelihood of recession, normal or
expansion are 0.2, 0.6 and 0.2. respectively. BNS had suspended
their dividend due to the pandemic crisis and has a beta of
0.68. BMO has continued to pay its dividends and has an
expected return of 13%, a standard deviation of 34%, a beta of
0.45, and a correlation with BNS of 0.48. The market portfolio has
a standard deviation of 14%.
a) Assuming that the CAPM holds, what is the expected return and
standard deviation of BNS?
After careful analysis you decide to invest 60% of your portfolio
in BNS and 40% in BMO.
What are the ;
b) expected return
c) standard deviation
d) beta of this portfolio?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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