Risk and Return Illustration 27


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The stock of Box Limited performs relatively well to other stocks during recessionary periods. The stock of Cox Limited, on the other hand, does well during growth periods. Both the stocks are currently selling for  100 per share. You assess the rupee return (dividend plus price) of these stocks for the next year as follows:

 

 

 

Economic Condition

High growth

Low growth

Stagnation

Recession

Probability

Return on Box’s stock

Return on Cox’s stock

0.3

100

150

0.4

110

130

0.2

120

90

0.1

140

60

 

Calculate the expected return and standard deviation of investing:

(a)     1,000 in the equity stock of Box Limited

(b)    1,000 in the equity stock of Cox Limited

(c)     500 each in the equity stock of Box Limited and Cox Limited.


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