Question

0 Data Table (Click on the following icon in order to copy its contents into a spreadsheet) State of Economy Boom Growth Stagnant Recession Return on Probability Asset Jin of State State 0.25 0.060 0.37 270 060 0.24 0.060 0.14 0.060 Return on Assot Kin Stale 0.240 0.120 0.025 -0.110 Return on Asset Lin Stale 0.280 0 .180 0.080 -0.180 Print Done

Answer 1

Stock J
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Boom	0.25	6	1.5	0	0
Normal	0.37	6	2.22	0	0
Stagnant	0.24	6	1.44	0	0
Recession	0.14	6	0.84	0	0
	a. Expected return %=	sum of weighted return =	6	Sum=Variance Stock J=	0
			b. Standard deviation of Stock J%	=(Variance)^(1/2)	0
Stock K
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Boom	0.25	24	6	14.5	0.00525625
Normal	0.37	12	4.44	2.5	0.00023125
Stagnant	0.24	2.5	0.6	-7	0.001176
Recession	0.14	-11	-1.54	-20.5	0.0058835
	a. Expected return %=	sum of weighted return =	9.5	Sum=Variance Stock K=	0.01255
			b. Standard deviation of Stock K%	=(Variance)^(1/2)	11.2
Stock L
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(C)^2* probability
Boom	0.25	28	7	14.94	0.00558009
Normal	0.37	18	6.66	4.94	0.000902933
Stagnant	0.24	8	1.92	-5.06	0.000614486
Recession	0.14	-18	-2.52	-31.06	0.01350613
	a. Expected return %=	sum of weighted return =	13.06	Sum=Variance Stock L=	0.0206
			b. Standard deviation of Stock L%	=(Variance)^(1/2)	14.35
Covariance Stock J Stock K:
Scenario	Probability	Actual return% -expected return% for A(A)	Actual return% -expected return% For B(B)	(A)*(B)*probability
Boom	0.25	0.0000	14.5	0
Normal	0.37	0	2.5	0
Stagnant	0.24	0.00	-7	0
Recession	0.14	0.00%	-20.5	0
			Covariance=sum=	0
		Correlation A&B=	Covariance/(std devA*std devB)=	0
Covariance Stock J Stock L:
Scenario	Probability	Actual return% -expected return% for A(A)	Actual return% -expected return% for C(C)	(A)*(C)*probability
Boom	0.25	0	14.94	0
Normal	0.37	0	4.94	0
Stagnant	0.24	0.00%	-5.06	0
Recession	0.14	0	-31.06	0
			Covariance=sum=	0
		Correlation A&C=	Covariance/(std devA*std devC)=	0
Covariance Stock K Stock L:
Scenario	Probability	Actual return% -expected return% For B(B)	Actual return% -expected return% for C(C)	(B)*(C)*probability
Boom	0.25	14.5	14.94	0.00541575
Normal	0.37	2.5	4.94	0.00045695
Stagnant	0.24	-7	-5.06	0.00085008
Recession	0.14	-2050%	-31.06	0.00891422
			Covariance=sum=	0.015637
		Correlation B&C=	Covariance/(std devB*std devC)=	0.972549043
	Expected return%=	Wt Stock J*Return Stock J+Wt Stock K*Return Stock K+Wt Stock L*Return Stock L
	Expected return%=	0.12*6+0.5*9.5+0.38*13.06
	c. Expected return%=	10.43
	Variance	=w2A*σ2(RA) + w2B*σ2(RB) + w2C*σ2(RC)+ 2*(wA)*(wB)*Cor(RA, RB)*σ(RA)*σ(RB) + 2*(wA)*(wC)*Cor(RA, RC)*σ(RA)*σ(RC) + 2*(wC)*(wB)*Cor(RC, RB)*σ(RC)*σ(RB)
	Variance	=0.12^2*0^2+0.5^2*0.11201^2+0.38^2*0.14354^2+2*(0.12*0.5*0*0.11201*0+0.5*0.38*0.11201*0.14354*0.97255+0.12*0.38*0*0*0.14354)
	Variance	0.012054
	Standard deviation=	(variance)^0.5
	d. Standard deviation=	10.98%