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prophet
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i need help with this problem for my money and banking class....
Bozo has been working very hard for Ring Ding Circus. He has saved so much money, he doesn't know what to do with it all. His broker recently called him with the following stock recommendations:
Stock Return during expansion Return during contraction
440 Entertainment, Inc. 15% -10%
440 Restaurants, Inc. 10% 5%
440 Transportation, Inc. 25% 2%
440 Oatmeal, Inc. -20% 5%
440 Discount Clothes, Inc. -10% 8%
Assume that econometric forecasts predict expansion with a probability of 60% and recession with a probaility of 40%. Further assume that Bozo can afford to spend $1 million on the stocks.
1. What is the expected return and standard deviation (risk) of each stock?
2. Assuming that Bozo spends the same amount on each stock, what is the expected return and standard deviation (risk) of the entire portfolio?
3. Assuming that Bozo spends the same amount on each stock, what combination of stocks maximizes Bozo's return and minimizes his risk?
Bozo has been working very hard for Ring Ding Circus. He has saved so much money, he doesn't know what to do with it all. His broker recently called him with the following stock recommendations:
Stock Return during expansion Return during contraction
440 Entertainment, Inc. 15% -10%
440 Restaurants, Inc. 10% 5%
440 Transportation, Inc. 25% 2%
440 Oatmeal, Inc. -20% 5%
440 Discount Clothes, Inc. -10% 8%
Assume that econometric forecasts predict expansion with a probability of 60% and recession with a probaility of 40%. Further assume that Bozo can afford to spend $1 million on the stocks.
1. What is the expected return and standard deviation (risk) of each stock?
2. Assuming that Bozo spends the same amount on each stock, what is the expected return and standard deviation (risk) of the entire portfolio?
3. Assuming that Bozo spends the same amount on each stock, what combination of stocks maximizes Bozo's return and minimizes his risk?
