Question

Expected return and standard deviation. Use the following information to answer the questions: a. What is the expected return of each asset? b. What is the variance of each asset? c. What is the standard deviation of each asset? Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type a. What is the expected return of asset A? (Round to fou 0 Data Table - X (Click on the following icon in order to copy its contents into a spreadsheet.) State of Economy Boom Probability of State 0.38 0.51 0.11 Return on Asset A in State 0.03 0.03 Return on Asset B in State 0.26 0.08 -0.05 Return on Asset C in State 0.29 0.19 -0.28 Normal Recession

Answer 1

х fx -B33-$D$37 ЕЗ3 В D E F G 31 Asset A: Probability Expected return [rxP(r)= H] Return (r) [(P(r)] (r-H)^2 P(r)x(r-u)^2 32 r-u 0.0000 33 0.0300 0.38 0.0114 0.0000 0.0000 34 0.0300 0.51 0.0153 0.0000 0.0000 0.0000 35 0.0000 0.0300 0.11 0.0033 0.0000 0.0000 36 Expected 0.0300 37 return Variance (o^2) 0.0000 38 Standard deviation (o) 0.0000 39

fir X -B33-$D$37 ЕЗ3 В C E F G 31 Asset B: Probability Expected return [rxP(r)= H] Return (r) 32 [(P(r)] (r-u)^2 P(r)x(r-u)^2 r-u 33 0.38 0.0988 0.0159 0.0060 0.2600 0.1259 34 0.51 0.0800 0.0408 -0.0541 0.0029 0.0015 (0.0055)01841 35 (0.0500) 0.11 0.0339 0.0037 36 Expected 0.1341 37 return Variance (aA2) 0.0112 38 Standard deviation (a) 0.1060 39 LL

fix X -B33-$D$37 ЕЗ3 В E F G 31 Asset C Probability Expected return [rxP(r)= H] P(r)x(r-u)A2 Return (r) [(P(r)] (r-u)^2 32 r-u 33 0.1102 0.2900 0.38 0.1137 0.0129 0.0049 34 0.51 0.0969 0.0137 0.1900 0.0002 0.0001 (0.0308)04563 35 (0.2800) 0.11 0.2082 0.0229 36 Expected 0.1763 37 return Variance (a^2) 38 0.0279 Standard deviation (o) 0.1671 39

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