family friend has approached you to help her determine which of the two common stocks she should invest in Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14%
family friend has approached you to help her determine which of the two common stocks she should invest in Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A close family friend has approached you to help her determine which of the two common stocks she should invest in
|
Common Stock A |
|
Common Stock B | |
|
Probability |
Return |
Probability |
Return |
|
0.25 |
11% |
0.25 |
-5% |
|
0.15 |
15% |
0.25 |
6% |
|
0.6 |
19% |
0.25 |
14% |
|
|
|
0.25 |
22% |
Required:
- Calculate the expected returns of stock A
- Determine the risk (standard deviation) and return of stock A
- Calculate the expected returns of stock B
- Determine the risk (standard deviation) and return of stock B
- Which investment should your friend invest in?
- Jenny has decided that she will invest her $100,000 savings in stocks as follows: What
rate of return should Jenny expects to receive on her portfolio?
|
Company |
Percentage of Investment |
Expected rate of return |
|
Standards Company Limited |
45% |
9% |
|
Starbucks |
15% |
12% |
|
Treasury Bill |
40% |
4% |
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