B. Kraska will also suggest that it is good to assess risk by looking forward to

Question

B. Kraska will also suggest that it is good to assess risk by looking forward to how we expect stocks to react to a particular set of circumstances or "states of nature." Use the following set of assumptions for the coming year to compute the expected rate of return and the standard deviation for Amazon.com, Coca-Cola, and a portfolio with equal dollar amounts invested in Amazon.com and Coca-Cola. See table below: State of Economy: Probability of State: Amazon.com Conditional Return: Recession 30.00% -25.00% Average 50.00% 30.00% Boom 20.00% 50.00% Coca-Cola Conditional Return: 50/50 Portfolio Conditional Return: 5.00% -10.00% 12.00% 21.00% 20.00% 32.50%

Explanation / Answer

amazon is the better option to invest

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