QUESTION 1
Syntex, Inc., is considering an in-vestment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return?
Common Stock A Common Stock B
Probability Returns Probability Returns
0.3 11% 0.2 -5%
0.4 15% 0.3 6%
0.3 19% 0.3 14%
0.2 22%
QUESTION 2
Syntex, Inc., is considering investing in both stocks and build an equally weighted portfolio.
If the correlation between the stocks is 0.5, what is the expected portfolio return and standard deviation?
`Due to the increased profits, Syntex, Inc., has additional funds of $1,000,000, and is considering investing $340,000 in Stock A and the rest of the funds in Stock B to build a value weighted portfolio.
If the correlation between the stocks is -0.5, what is the expected portfolio return and standard deviation?
Was it a good choice? Elaborate you answer.