Question

Check You decide to invest in a portfolio consisting of 27 percent Stock A, 38 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? points State of Economy Recession Skipped Probability of State of Economy .105 .647 .248 Return if State Occurs Stock A Stock B Stock C - 9.20% - 2.60% -11.60% 8.50% 10.48% 16.00% 21.37% 24.75% 29.45% Normal Boom eBook Print

Answer 1

deviation - 2x probability Stock A state of economy rate of return if state occurs Stock A Stock B Stock C Recession -9.20% -2.60% -11.60% Normal 8.50% 10.48% 16.00% Boom 21.37% 24.75% 29.45% weighted return (weight x return) Stock B Stock C -2.48% -0.99% -4.06% 2.30% 3.98% 5.60% 5.77% 9.41% 10.31% weighted sum probability expected return (sum of weighted return) -7.53% 0.105 -0.79% 11.88% 0.647 7.68% 25.48% 0.248 6.32% 13.21% deviation (weighted return- deviation^2 expected return) -20.745% 4.303738% -1.336% 0.017850% 12.269% 1.505271% 0.004518925 0.00011549 0.00373307 Weight 27.00% 38.00% 35.00% Variance Standard deviation = variance10.5 0.00837 9.15% Variance 0.00837