a). Expected Return = [Probability(i) * Return(i)]
Stock A's Expected Return = [0.15 * 37%] + [0.45 * 22%] + [0.35 * (-4%)] + [0.05 * (-18%)]
= 5.55% + 9.90% + (-1.40%) + (-0.90%) = 13.15%
Stock B's Expected Return = [0.15 * 47%] + [0.45 * 18%] + [0.35 * (-7%)] + [0.05 * (-22%)]
= 7.05% + 8.10% + (-2.45%) + (-1.10%) = 11.60%
Stock C's Expected Return = [0.15 * 27%] + [0.45 * 11%] + [0.35 * (-5%)] + [0.05 * (-8%)]
= 4.05% + 4.95% + (-1.75%) + (-0.40%) = 6.85%
Portfolio's Expected Return = [0.20 * 13.15%] + [0.60 * 11.60%] + [0.20 * 6.85%]
= 2.63% + 6.96% + 1.37% = 10.96%
b-1). Portfolio's Variance = [Probability(i) * {Expected Return - Return(i)}2]
= [0.20 * (0.1096 - 0.1315)2] + [0.60 * (0.1096 - 0.1160)2] + [0.20 * (0.1096 - 0.0685)2]
= 0.000096 + 0.000025 + 0.000338 = 0.00046
b-2). Standard Deviation = [Variance]1/2
= [0.00046]1/2 = 0.02141, or 2.14%
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