Suppose you know the returns distribution of stock X and Y over the next year:
Bear Normal Bull
Probability
0.2
0.3 0.5
Stock X
-20%
18% 50%
Stock Y -15%
20% 10%
a) What are the expected rates of return for stock X and stock Y?
b) What are the standard deviations of returns on stock X and Y?
c) Assume that of your $10,000 portfolio, you invest $9,000 in Stock X and $1,000 in stock
Y. What is the expected return on your portfolio?