Question

calculate the expected return and standard deviation (with details, please)

TABLE 8.5 Returns of Zig, Peat, and 50-50 Portfolio of Zig and Peat State of Economy Boom Probability of State Retum of Zig Company 40% Return of Peat Company Return of Portfolio 31.0% 0.20 22% Steady 12% 15% 0.50 0.30 13.5% -4.5% Recession 5% Eln) 12.5% 10.7% 11.6%

Answer 1

The solution is as follows:

Expected Return of Zig = (40X0.20)+(12 X0:50)+(-5X0.30) = 8 +6+ (-1.5) = 12:59% | Expected Return of feat -(22X0.20) +(15X0.50)+(4X0:30) = 4.4 +7.57(-1.2) > 10.4% Expected Return of Pootfolio -(31X 0.20 +(130.5X0.50) +(-4.5X0:30) 3 6.2 + 6.75+ (- 1.35) = 11.6% OR, = 12:5X0.50 + 10.7 X0.50 = 6:25+5:35 = %.9.17

Standard Deviation of Zig. SC40 – 12.5)2x0.20+(12 - 12-5)2 #x0:50 +(-5-12.5)40:30 15125+ 0.125+91.875 = V243.25 +15.596%. Standard Deviation of Peat (22-10.7)2X0.20+(15-10.7) 2x 0.50 +(-4-10.7) 20.30 -J25.53879.245764.827. 99.61 I 9.9804%