13 years ago 13 years ago

Risk and Return Illustration 24

by Score Tutorial 13 years ago13 years ago

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The rate of return on stocks of Ben and Ten under different states of the economy are presented below along with the probability of the occurrence of each state of the economy.

Particulars	Boom	Normal	Recession
Probability of occurrence	0.3	0.5	0.2
Rate of Return on Stock Ben (%)	25	35	45
Rate of Return on Stock Ben (%)	45	35	25

(i) Calculate the expected rate of return and standard deviation of return on stock Ben and Ten.

(ii) If you could invest in either stock Ben or stock Ten, but not in both, which stock would you prefer?

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Risk and Return Illustration 24

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