1. Consider the following information: State of Economy Prob. of State Return of Stock A Return of Stock B Boom 0.40 35% 45% Good 0.30 15% 20% Poor 0.10 -5% 0% Bust 0.20 -10% -20% Your portfolio is invested 40 percent in Stock A and 60 percent in Stock B. Calculate the standard deviation of your portfolio. A. 16 percent B. 22 percent C. 18 percent D. 20 percent
2. A project has an initial cost of $6,000 and has annual cash inflows of $1,725, $2,165, $2,281, and $2,624 in years 1-4. Assuming a 15% discount rate, find the following for the project.
1. Payback period
2. Discounted payback period