Question

The first 4 are answered, but I need help on the other 16. Respectfully, please don't answer if you can't help with all 20.

QUESTION 1 101-010) Questions 1-10 are designed to review some statistical concepts as well as to help you understand the benefits from diversification. Assume that there are two assets (A and B) and there are four possible future scenarios. The four scenarios and their probabilities are shown in the following table. The last two columns show the returns on assets A and B in the four possible scenarios. Scenario Probability RB Boom 0.3 - 0.15 -0.02 Normal 0.3 10.08 -0.01 Recession 10.3 -0.05 0.03 Disaster -0.20 0.05 What is the expected return on asset A? OA. -0.020 OB. 0.024 OC.0.034 OD. 0.051

Answer 1

Expected Return on Asset A

RA = 0.3*0.15 + 0.3*0.08 + 0.3*-0.05 + 0.1*-0.20

= 0.034

Expected Return on Asset B

RB = 0.3*-0.02 + 0.3*-0.01 + 0.3*0.03 + 0.1* 0.05

= 0.005

Standard Deviation of Return on Asset A

SDA = Square Root of {[(0.15-0.034)2 * 0.3] + [(0.08-0.034)2 * 0.3] + [(-0.05-0.034)2 * 0.3] + [(-0.2-0.034)2 * 0.1]}

= 0.1107

Standard Deviation of Return on Asset B

SDB = Square Root of {[(-0.02-0.005)2 * 0.3] + [(-0.01-0.005)2 * 0.3] + [(0.03-0.005)2 *0.3] + [(0.05-0.005)2 * 0.1]}

=0.0254