a). Expected Return =
[Probability(i) * Return(i)]
Stock A's Expected Return = [0.10 * 0.34] + [0.60 * 0.19] + [0.25 * -0.01] + [0.05 * -0.15]
= 0.034 + 0.114 - 0.0025 - 0.0075 = 0.138, or 13.80%
Stock B's Expected Return = [0.10 * 0.44] + [0.60 * 0.15] + [0.25 * -0.09] + [0.05 * -0.19]
= 0.044 + 0.09 - 0.0225 - 0.0095 = 0.102, or 10.20%
Stock C's Expected Return = [0.10 * 0.24] + [0.60 * 0.08] + [0.25 * -0.07] + [0.05 * -0.11]
= 0.024 + 0.048 - 0.0175 - 0.0055 = 0.049, or 4.90%
Portfolio's Expected Return = [0.25 * 0.138] + [0.50 * 0.102] + [0.25 * 0.049]
= 0.0345 + 0.051 + 0.01255 = 0.09775, or 9.78%
b-1). Variance =
[Probability(i) * {Expected Return - Return(i)}2]
= [0.25 * (0.09775 - 0.138)2] + [0.25 * (0.09775 - 0.102)2] + [0.25 * (0.09775 - 0.049)2]
= 0.00041 + 0.00001 + 0.00059 = 0.00101
b-2). Standard Deviation = [Variance]1/2 = [0.00101]1/2 = 0.03175, or 3.18%
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