Question

Risk and DIY Diversification 13 of 9). Two Asset Example: Gold imple: Gold and Auto stocks Probability Rate of Retur Auto Stock Gold Stock Scenario Recension Normal Boom 20 1/3 Deviation from Rate o Return Sound Dovlation 20 Scenario Recession Normal Boom Expected return +18 +13 -B+B + 16) - 58 Variance (169 + 0 + 100) - 112.7 001-4-4411 - 2007 2887 - 1645 112.7 - 10.6% Standard deviation (V varianco)

in the second pic, can please help me figure out how the profile return percentage of the standard deviation is 3.9?? like how and why is it 3.9???

Answer 1

Similar to how we calculate standard deviation for suto stock or gold stock, we calculate standard deviation for portfolio we have probability portfolio return 1/3 -1% 1/3 4.5% 1/3 8.5% expected returns=1/3*(-1%+4.5%+8.5%)=4.00% standard deviation=sqrt(1/3*(-1%-4%)^2+1/3*(4.5%-4%)^2+1/3*(8.5%-4%)^2)=3.89%