Question

Consider the following information:

		Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B	Stock C
Boom	0.35	0.21	0.34	0.26
Good	0.25	0.11	0.23	0.08
Poor	0.30	–0.02	–0.10	–0.03
Bust	0.10	–0.10	–0.18	–0.10

a. Your portfolio is invested 35 percent each in A and C and 30 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b-1. What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

b-2. What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

   

Answer 1

Weight Rate of Return If State Occurs 0.3 0.35 0.35 Total probability Total-Expected return Return weight d2*probability State of Expected Portfolio Deviatio Stock A Probability Stock B Stock C TOTAL Economy VARIANCE A C Return Deviation n^2 0,093275 0.166 0.027556 Boom 0.35 0.21 0.34 0.26 0.102 0.0096446 0.2665 0.0735 0.091 Good 0.25 0.028 0.035 0.001225 0.11 0.23 0.08 0.1355 0.0385 0.069 0.033875 0.00030625 Poor Bust 0.3 -0.02 -0.1 -0.03 0.148 0.021904 -0.007 -0.03 -0.0105 -0.0475 -0.01425 0.0065712 0.0124 0.005040025 0.1 -0.1 -0.18 -0.1 -0.2245 -0.035 -0.054 -0.035 -0.124 0.0504 0.1005 0.021562075 Expected return 0.1005 10.05% variance 0.02156 14.68% standard deviation(variance(1/2)) 0.02156^(1/2)