The common stock of Marielle Machinery will generate the following payoffs to investors next year:
|
Dividend
|
Stock Price
|
|
Boom
|
$8
|
$240
|
|
Normal
|
4
|
90
|
|
Recession
|
0
|
0
|
The common stock of Escapist Films will generate the following payoffs to investors next year:
|
Dividend
|
Stock Price
|
|
Boom
|
$0
|
$18
|
|
Normal
|
1
|
26
|
|
Recession
|
3
|
34
|
Marielle Machinery and Escapist Films stocks are selling today for $90 and $30 a share, respectively. Calculate the expected rate of return and standard deviation of returns for both companies. Then calculate the expected return and standard deviation of a portfolio half invested in Marielle Machinery and half invested in Escapist Films.