Question

The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year: Probability Dividend Stock Price Boom 0.3 7.00 190.00 Normal economy 0.5 3.00 116.00 Recession 0.2 0.00 0.00 The stock is selling today for $96. Calculate the expected return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. (Do not round your intermediate calculations and round your final answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.) Expected return of portfolio ____ % Standard deviation of portfolio ____ % Why is the portfolio standard deviation lower than for either stock’s individually? The portfolio standard deviation is lower than for either stock’s individually because _____ 

          The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year:
Probability
Dividend
Stock Price
Boom
0.3
7.00
190.00
Normal economy
0.5
3.00
116.00
Recession
0.2
0.00
0.00
The stock is selling today for $96.
Calculate the expected return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita.
(Do not round your intermediate calculations and round your final answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.)
Expected return of portfolio ____ %
Standard deviation of portfolio ____ %
Why is the portfolio standard deviation lower than for either stock’s individually?
The portfolio standard deviation is lower than for either stock’s individually because _____
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Horngren’s Cost Accounting
Horngren’s Cost Accounting
Srikant M. Datar, Madhav V. Rajan 16th Edition
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The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year: Probability Dividend Stock Price Boom 0.3 7.00 190.00 Normal economy 0.5 3.00 116.00 Recession 0.2 0.00 0.00 The stock is selling today for $96. Calculate the expected return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. (Do not round your intermediate calculations and round your final answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.) Expected return of portfolio ____ % Standard deviation of portfolio ____ % Why is the portfolio standard deviation lower than for either stock’s individually? The portfolio standard deviation is lower than for either stock’s individually because _____
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Transcript

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00:01 In this question we are given that e of r equal to 0 .14 and sigma based on this values can be calculated like this, that is xxx into p office.
00:12 Okay, so which is 0 .333 the whole square multiplied by 0 .31 the whole square plus 0 .333 the whole square plus 0 .33 the whole square multiplied by 0 .333 the whole square multiplied by 0 .41 the whole square plus 0 .33 the whole square multiplied by 0 .51 the whole square plus 2 .0 .33 multiplied by 0 .33 multiplied by 0 .31 multiplied by 0 .31 plus 2 times 0 .333 multiplied by 0 .33 multiplied by 0 .33.
01:01 Multiplied by 0 .41 multiplied by 0 .51 multiplied by 0 .51 multiplied by 0 .2.
01:09 Plus 2 .3 multiplied by 0 .3.
01:16 Multiplied by 0 .3 .1 multiplied by 0 .51 multiplied by 0 .51 multiplied by 1 by 2.
01:23 Okay...
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