Question

		Expected Return	Expected Return	Expected Return
	Probability	A	B	C
Best state	0.25	40%	25%	15%
Good state	0.25	30%	20%	12%
Normal state	0.25	20%	15%	9%
Poor state	0.25	10%	10%	6%
beta	-	1.8	1.1	0.7

Complete the following table.

	A	B	C
Expected average return (e.g., 10.00%)	%	%	%
Standard deviation (e.g., 10.00%)	%	%	%

If a portfolio consists of A, B, and C is structured as follows, complete the table.

	A	B	C
Portfolio weight	0.20	0.30	0.50

	Portfolio
Expected average return (e.g., 10.00%)	%

Answer 1

Expected average return: average return = probability & Enpected return A = 0.25x40% + 0.25x 30%. + 0.25x 20% +0.25*10% = 101 + 7.5% + 5% + 2.5% 254. B = 0.25x25% + 0.25 x 20%. + 0.25 x 15% +0.25x 10% 17.5. C = 0.25x15% + 0.25% 12% +0.25 x 9%+0.25x6% 10.5%

Standard deviation - P(-) where, p= probability x = return of security 7 = average de mean return À I return (A) (A-A) (A - A) 2 P (A-A) 2 security yo 225 56.25 15 TE 0.25 0.25 0.25 0.25 30 20 10 5 25 15 25 25 225 6.25 16.25 56.25 zau 125 To - Jop (n=7) 1125 i standard deviation TA = 11.18% NOTE: we already calculated average return (A) = 251.

security B Tum (8) -B (6-8) 6. 45 1. 5 56-25 0.22 0 25625 0-25 । -2.5 6.2 07 10 -1.5 56.4 P (1-3) 14.663 1.562 J-5625 [५.6625 31.25 standard deviation GB= Sep (B-53)? = 5.5१/. NOTE: We already Calculated (B) = 1.5% security C P Tetun (c) ) P(C-८) C-८) 20-25 १.२८ 0-2 (C ५.5 .5 15 5.0625 0.24 12 0.5625 0-25 -1.5 २.25 020 -4. २०.25 0.565 5.062 14 Je= Sep (C-2 _ = 3:35./. Here c= 10.5.).)

of Expected average return portfolio = wyr + Wa xr2 + Wz XY3 where w,= weights of individual returns = average return already know w, = 0.2 r. = 25.1. W2 = 0.3 ₂ = 11.5%. Wz= 0.5 g = 10.5% we average return of portfolio = 0.2x254 +0.3417.5 +0.5x10.5 = = 5+5.25 +5.25 15.5%