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Rate of Return if State Occurs State of Economy Probability Stock A Stock B Stock C...

Rate of Return if State Occurs

State of Economy

Probability

Stock A

Stock B

Stock C

Boom

0.15

0.30

0.45

0.33

Good

0.45

0.12

0.10

0.15

Poor

0.35

0.01

-0.15

-0.05

Bust

0.05

-0.20

-0.30

-0.09
  1. Your portfolio is invested 30% each in A and C and 40% in B. What is the expected return of the portfolio?
  2. What is the variance of this portfolio? The standard deviation?
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Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum ー E ゴWrap Text aCopy B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard NP11 NI Font Alignment Number Styles Edting NK NM NO NP stock A RETURN (A) r- E(r) p*(r-E(r))A2 STATE OF ECONOMY BOOM GOOD POOR BUST prob (p) return (r) p x r 30.0 12.0 4 0.15 0.45 0.35 0.05 4.50 5.40 0.35 1.00 9.25 variance (A) 20.8 64.58 3.40 23.82 42.78 134.59 11.6012 6 20.0 29.3 E(rA)- SD(A) EXPECTED stock B RETURN (B) r-E( r) STATE OF ECONOMY BOOM GOOD POOR BUST prob (p) return (r) p x r 45.0 10.0 15.0 30.0 246.04 13.61 133.09 59.51 452.2500 21.2662 15 0.15 0.45 0.35 0.05 6.75 4.50 5.25 40.5 19.5 34.5 4.50 variance (B) 18 E(rB)- SD(B) 4 capm portfolio retirement futures PV, FV, ANNUITY ACCCVPKE BOND HPR REALISED YIELDNPV ROE std costin ECONOMY, BEFORE AFTER BUYBACKShel 08:59 24-01-2019File Home nert Page Layout Formulas Data Review View dd-Ins Cut copy ▼ Format Painter Σ AutoSum Calibri ー E ゴWrap Text General B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Clipboard NJ33 NI Font Alignment Number Styles Cells Edting NJ NK NM NO NP SD(B)- 20 21 21.2662 EXPECTED 23 24 25 26 27 28 29 30 31 32 stock C RETURN (C) r- E(r) prE(r))A2 STATE OF ECONOMY BOOM GOOD POOR BUST prob (p) 0.15 0.45 0.35 0.05 return (r) px r 33.0 15.0 5.0 9.0 4.95 6.75 1.75 -0.45 23.5 5.5 14.5 18.5 9.50 variance (C) 82.84 13.61 73.59 E(rC)- 187.1500 13.6803 SD(C) = 34 35 36 37 4Mcapm-portfolio retirement futures FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELDNPV ROE std costi ECONOMY, BEFORE AFTER BUYBACKShel 08:59 24-01-2019Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy ▼ E AutoSum Wrap Text B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting NP1 NP NQ NR NS NT NU NV NW COVARIANCE STATE OF ECONOMY BOOM GOOD POOR BUST COV(A,B) 40.5 126.056 5.5 6.80625 19.5 56.3063 34.5 50.4563 COV(A,B) 239.6250 prob (p) r - E(r r-E(r) 20.8 2.8 -8.3 29.3 4 0.15 0.45 0.35 0.05 6 10 STATE OF COV(A,C) ECONOMY prob (p) Elr) 12 13 14 15 16 17 18 11 1 ト capm-portfolio, retirement futures BOOM GOOD POOR BUST 0.15 0.45 0.35 0.05 20.8 2.8 8.3 29.3 23.50 73.1438 5.50 6.80625 14.50 41.8688 18.50 27.0563 COV(A,C)148.8750 FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPV ROE std costin ECONOMY, BEFORE AFTER BUYBACKShel 08:59 24-01-2019Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy E AutoSum Wrap Text General в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Font Alignment Number Styles Cells NP26 NP NQ NR NS NT NU NV NW 10 COV(A,C) STATE OF ECONOMY prob (p) r-E()r-E(r) BOOM GOOD POOR BUST 12 13 14 15 16 17 18 19 20 21 0.15 0.45 0.35 0.05 20.8 23.50 73.1438 5.50 6.80625 14.50 41.8688 18.50 27.0563 COVA,C) = 148.8750 8.3 29.3 COV(B,C) STATE OF ECONOMY prob (p) r-E(r) r-E(r) BOOM GOOD POOR BUST 0.15 0.45 0.35 0.05 40.5 5.5 19.5 34.5 23.50 142.763 5.50 13.6125 14.50 98.9625 18.50 31.9125 COV(B,C) 287.2500 23 24 25 26 4 capm-portfolio retirement futures PV, FV, ANNUITY ACCCVPKE BOND HPR REALISED YIELDNPV ROE std costin EPS%, ECONOMY, BEFORE AFTER . BUYBACK She 08:59Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text General aCopy в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. Styles ▼ ㆆ ▼ Clipboard NQ41 NI Font Alignment Number Cells NJ NK NL NM NO NP Na NR NS NT 34 35 36 37 38 a 39 40 41 b 42 43 WEIGHTS RETURN 0.3 0.4 0.3 9.25 4.50 9.50 WB E(Rp)=WA*Ra+WB*RB+We*Rc E(Rp) (0.3*9.25) + (0.4*4.5) 0.3*9.5) EXPECTED RETURN ON PORTFOLIO= 7.43 REQUIREMENT 1 SD(A)- SD(B) = SD(C) = PORTFOLIO VARIANCES (W1)2(SD1)^2 + (W2)2(SD2)^2 + (W3)2(SD3)^2+ 2 w1*w2*cov(1,2) + 2 w2キw3キcov(2,3) + 2 wl*W3°COV( 1.3) SO FOR PORTFOLIO: (1-STOCK A, 2 -STOCK B, 3 STOCK C) 11.6012 21.2662 13.6803 COV(A,B)- COV(B,C) COV(A,C)- 239.6250 148.8750 287.2500 45 46 47 48 49 50 51 VARIANCE= [(0.3)^2*(11.6012)^2 + (04)^2*(21.2662)^2+ (0.3)^2*(13.6803) 2 +2*(0.3)(0.4)(239.625) +2*(0.3)(0.4)(148.875)-2(0.3)(0.3)(287.25)) VARIANCE = 246.2617 STANDARD DEVIATION SQRT(242.261662)- 15.69 4Mcapm-portfolio retirement futures FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELDNPV ROE std costi ECONOMY, BEFORE AFTER BUYBACKShel 09:00

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