Question

Given the following information, calculate the expected return and standard deviation for a portfolio that has 52 percent invested in Stock A, 19 percent in Stock B, and the balance in Stock C. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Returns State of Economy Boom Bust Stock C Probability of State of Economy 0.80 0.20 Stock A 11% 14 Stock B 18% 21% -14 Expected return Standard deviation

Answer 1

Weight 0.19 0.29 0.52 total*probability EXPECTED Rate of Return If State Occurs Return weight d2*probability Probability of State of DEVIATIO PORTFOLIO State of Economy Stock B ТОTAL Stock A Stock C c VARIANCE Economy B A C RETURN DEVIATION N^2. 0,0572 0.0342 0.12184 0.02402 0.000577 0,000461568 Boom 0.8 0.11 0.18 0.21 0.0609 -0.0406 0.1523 0.00644 0.0728 Bust 0.2 0.14 -0.14 0.09608 0.009231 0.001846273 0 0.0322 0.12828 0.002307842 variance 0.00231 Expected return 0.002307^(1/2) 12.83% sd 4.80% 0.12828 variance 0.002308 standard deviation Variance (1/2) 0.002307^(1/2) 4.80%