An Investor Is Considering Purchasing Two Stocks for a Portfolio

question 37

Essay

An investor is considering purchasing two stocks for a portfolio.Stock A will comprise of 40% of the portfolio and Stock B 60%.It is expected that three economic states may occur, with a 40% probability of a boom economy, 50% probability of an average economy and a 10% probability of a bust economy.If a boom economy transpires, stock A will yield an 11% return and stock B 15%.An average economy will see a 7% and 11% returns for stocks A and B respectively.In a bust economy, stock A will have return of -20% and stock B -5%.Given the above information, calculate the portfolio expected return.

Distinguish between various types of financial statements and their specific purposes.

Understand the role of earnings before interest and taxes (EBIT) in financial performance measurement.

Make comparisons between companies of different sizes more effective through the use of common size financial statements.

Understand the tactics firms can employ to improve their Economic Value Added (EVA).

---

Definitions:

Problem-focused Coping

A coping strategy where one directly tackles a stressful situation by finding solutions to the problem causing the stress.

Pessimism

A predisposition towards perceiving negative outcomes or expecting the least favorable scenarios, accompanied by a deficiency in optimism or trust regarding what lies ahead.

Optimistic Outlook

A general expectation that good things will happen, or the belief that the future will be favorable.

External Locus of Control

The belief that one's outcomes in life are largely influenced by external forces beyond personal control.