Question

Question 5 1 pts Consider the following information on Stocks A, B, C and their returns (in decimals) in each state: State Boom 0.17 Good Prob. of State 20% 45% 25% 10% 0.33 0.15 0.02 -0.08 0.21 0.08 0.02 -0.02 Poor 0.09 0.03 -0.02 Bust If your portfolio is invested 25% in A, 40% in B. and 35% in C what is the standard deviation of the portfolio in percent? Answer to two decimals, carry intermediate calcs, to at least four decimals.

Answer 1

K3 X V fx : B =H3-$J$8 E F A C D G I M. H Expected portfolio return (r) J K Expected return [rxP(r)= ] | ru Probability [(P(r)] | (r-u)^2 P(r)x(r-u)^2 2 State of Rate of returns if state Weighted returns if state 1 economy occurs occurs (Weight Return) occurs (Weight Return) A B | C | A | B | C 3 Boom 0.33 0.21 0.17 0.08 0.08 0.06 4 Growth 0.15 0.08 0.09 0.04 0.03 0.03 5 Stagnant 0.02 0.02 0.03 0.01 0.01 0.01 6 Recession (0.08) (0.02) (0.02) -0.02 -0.01 -0.01 0.23 0.10 0.02 -0.04 0.20 0.45 0.25 0.10 0.0452 0.1330 0.0455 0.0080 0.0059 (0.0695) (0.0035) (0.1280)| 0.0177 0.0001 0.0048 0.0164 0.00354 0.00003 0.00121 0.00164 7 8 Weights 0.25 0.40 0.35 Expected return (u) 0.0930 9 Variance (012) 0.0064 10 Standard deviation (0) 8.01%

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