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15. Expected Return.
Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 10%, the probability of a stable growth economy is 15%, the probability of a stagnant economy is 50%, and the probability of a recession is 25%. Estimate the expected return on the following individual investments for the coming year.
Forecasted Returns for Each Economy
16. Variance and Standard Deviation (expected).
Using the data from problem 15, calculate the variance and standard deviation of the three investments: stock, corporate bond, and government bond. If the estimates for both the probabilities of the economy and the returns in each state of the economy are correct, which investment would you choose considering both risk and return? Why?
25. Beta of a Portfolio.
The beta of four stocks, G, H, I, and J are respectively 0.45, 0.8, 1.15, and 1.6. What is the beta of a portfolio with the following weights in each asset?
Weight in G
Weight in H
Weight in I
Weight in J