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?

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Expert Solution

jeff jeffy answered 2 years ago

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