Question

6. Calculating Expected Return Based on the following information, calculate the expected return. 

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Recession	.15	-.12
Normal	.60	.10
Boom	.25	.27

7. Calculating Returns and Standard Deviations Based on the following information, calculate the expected returns and standard deviations for the two stocks. 

State of Economy	Probability of State  of Economy	Rate of Return if State Occurs
		Stock A	Stock B
Recession	.10	.02	-.30
Normal	.50	.10	.18
Boom	.40	.15	.31

10. Returns and Standard Deviations Consider the following information: 

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
		Stock A	Stock B	Stock C
Boom	.15	.33	.45	.33
Good	.55	.11	.10	.17
Poor	.20	.02	.02	-.05
Bust	.10	-.12	-.25	-.09

a. Your portfolio is invested 25 percent each in A and C and 50 percent in 

b. What is the expected return of the portfolio? b. What is the variance of this portfolio? The standard deviation?

Answer 1

Ans 6) 0.11

State of Economy	Probability (P)	RETURN (Y)	(P * Y )
Recession	15%	-0.12	-0.02
Normal	60%	0.1	0.06
Boom	25%	0.27	0.07
		TOTAL	0.11