Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men.
|
State of Economy
|
Probability
|
T-Bills
|
Alta Inds.
|
Repo Men
|
American Foam
|
Market Port.
|
|
Recession
|
0.1
|
8.00%
|
-22.0%
|
28.0%
|
10.0%
|
-13.0%
|
|
Below Average
|
0.2
|
8.00%
|
-2.0%
|
14.7%
|
-10.0%
|
1.0%
|
|
Average
|
0.4
|
8.00%
|
20.0%
|
0.0%
|
7.0%
|
15.0%
|
|
Above Average
|
0.2
|
8.00%
|
35.0%
|
-10.0%
|
45.0%
|
29.0%
|
|
Boom
|
0.1
|
8.00%
|
50.0%
|
-20.0%
|
30.0%
|
43.0%
|
|
Tbills
|
Alta Inds.
|
Repo Men
|
AmericanFoam
|
Market Port
|
|
Expectedreturn
|
8%
|
17.40%
|
1.74%
|
13.80%
|
15.00%
|
|
Variance
|
0%
|
4.01%
|
1.79%
|
3.54%
|
2.35%
|
|
Standard Deviation
|
0%
|
20.04%
|
13.36%
|
18.82%
|
15.34%
|
|
coefficient of variation
|
0%
|
115.15%
|
768.03%
|
136.37%
|
102.24%
|
|
Beta
|
0.00
|
1.29
|
-0.86
|
0.68
|
1.00
|
A. Calculate the expected return, standard deviation, coefficient of variation, and beta for this portfolio.
B. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?