Consider the Following Probability Distribution for Stocks a and B

question 16

Multiple Choice

Consider the following probability distribution for stocks A and B: $$\begin{array} { c c c c } \text { State } & \text { Probability } & \text { Return on Stock A } & \text { Return on Stock B } \\1 & 0.15 & 8 \% & 8 \% \\2 & 0.20 & 13 \% & 7 \% \\3 & 0.15 & 12 \% & 6 \% \\4 & 0.30 & 14 \% & 9 \% \\5 & 0.20 & 16 \% & 11 \% \\\hline\end{array}$$ If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation?

• A) 9.9%; 3%
• B) 9.9%; 1.1%
• C) 10%; 1.7%
• D) 10%; 3%

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Definitions:

Initial Investment

The amount of money used to start a project, purchase an asset, or initiate operations in a new business.

Book Value

The value of an asset according to its balance sheet account balance, taking into consideration the cost of the asset minus depreciation.

Total Net Assets

The sum of all assets minus the liabilities, representing the owner's equity in a company.

Total Capital

The sum of a company's debt and equity, representing the total funds available for its operations and growth.