Question

Expected return and standard deviation. Use the following information to answer the questions. Return on Asset R in Return on Asset S in State Return on Asset T in State State of Probability of State 0.28 0.39 0.21 0.12 State Boom Growth Stagnant 0.035 0.035 0.035 0.035 0.250 0.140 0.170 -0.040 0,450 0.290 0.030 - 0.180 a. What is the expected return of each asset? b. What are the variance and the standard deviation of each asset? c. What is the expected return of a portfolio with equal investment in all three assets? a. What is the expected return of asset R? (Round to four decimal places.)

b.  What are the variance and the standard deviation of each​ asset?

c.  What is the expected return of a portfolio with equal investment in all three​ assets?

d.  What is the​ portfolio's variance and standard deviation using the same asset weights in part

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Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins Σ AutoSum , Paste geormat Painter Blu--.13x.Δ. -Ξ- 還ぽ喆Merge & Center. $, % ,Ma Conditional Format Cell insert Delete Format Sort &Find & Formatting as Table Styles ClearFilter Select dting Clipboard Styles NR254 NJ NT 254 255 256 STATE OF 257 ECONOMY 258 BOOM 59 GROWTH 260 STAGNANT 261 RECESSION 262 263 264 265 STATE OF 266 ECONOMY 267 BOOM 268 GROWTH 269 STAGNANT 270 RECESSION 271 272 EXPECTED rSTATE OF ASSET R RETURN r - E(r) prob (p) return (r) pxr ECONOMY prob (p) r-E(r) rE(r) COV(R,s) BOOM GROWTH 0.035 0.390.035 .21 0.035 0.035 0.28 0.0098 0 0.0137 0.0000000 0.0000000 0.0074 0.0000000 0.0000000 0.0042 0.0350 variance 0.28 0.0000 0.0945000 0.0000000 0.39 0.0000 -0.0155000 0.0000000 0.21 0.0000 0.0145000 0.0000000 0.0000-0.1955000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000 RECESSION COVR.S) 0000000 SD EXPECTED STATE OF COV(R,T) ASSET SRETURN E( p2 ECONOMY prob (p) rE(rr-E(r) return (r) pxr prob (p) BOOM 0.280.250 0.39 0.210.170 0.0357 0.0145000 0.0000442RECESSION 0.28 0.0000 0.2262000 0.0000000 0.39 0.0000 0.0662000 0.0000000 0.21 0.12 0.0000 -0.4038000 0.0000000 0.0700 0.0945000 0.0025005 GROWTH 0.0546 -0.0155000 0.0000937 0.140 STAGNANT 0.0000 -0.1938000 0.0000000 COVR,T) 0.0000000 0.12 -0.040-0.0048 -0.1955000 0.0045864 0.0072248 0.0849985 0.1555 variance SD capm portfolio retirement futures margin PV, FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPV ROE std costing EPS%, ECONOMY, BEFORE AFTER BUYBACK C Shel-1-1 08:26 12-04-2019

Home ert Page Layout Formulas Data Review V Add-Ins Cut Σ AutoSum , Calibri General Fil ClearFilter Select В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles Clipboard Font Alignment Styles Cells dting NJ286 NJ NK NM NO NP NQ. NR NS NT NU 273 274 275 276 STATE OF 277 ECONOMY 278 BOOM 279 GROWTH 280 STAGNANT 281 RECESSION 282 283 284 285 286 287 288 289 290 291 :4 EXPECTED STATE OF cov(S,T) p Er)2 ECONOMY prob (p) r-E(r) rE(r) ASSETT RETURN return (r) p x r r-E(r) prob (p) BOOM GROWTH STAGNANT 0.28 0.0945 0.2262000 0.0059853 0.39 -0.0155 0.0662000 -0.0004002 0.21 0.0145 -0.1938000 -0.0005901 0.12 -0.1955 -0.4038000 0.0094731 cov(S,T) 0.0144681 0.28 0.4500 0.1260 0.2262000 0.0143266 0.1131 0.0662000 0.0017092 0.39 0.290 0.210.030 0.0063 -0.1938000 0.0078873 RECESSION 0.12 -0.180 -0.0216-0.4038000 0.0195665 0.2238 variance 0.0434896 E(r) SD 0.2085415 COVARIANCE(S,T) PROB (rS-E(rS))*(rT-E(rT)) ca m-portfolio retrement futures margn PVN. ANNUITY ACC CVP KE BOND HPR REALISED YIELD NP ROE. std cost EPS ECONOMY BEF REAFTER BU BAK "Sh erences: OREO 12-04-2019

Home ert Page Layout Formulas Data Review V Add-Ins Cut 11.A. ^·ーーーシ. ずWrap Text AutoSum Calibri General aCopy 還很函Merge & Center, 'ila conditional Format Cell Formatting as Table Styles Paste Blu--.19s. ▲· insert Delete Format $, % , Sort &Find & , Format Panter ClearFilter Select dting Clipboard Font Styles Cells NP286 NI NJ NK NL NM NO NP NR NS NT NU 286 287 288 WR- 289 290 291 292 с 293 294 295 296 297 298 299 300 VARIANCE= [(0.3333)"2"(0.000000)^2 + (0.3333)^2"(0.0849985)"2+ (0.3333)^2*(0.2085415)^2+ 2"(0.3333)*(0.3333)*(0.00000) + 2"(0.3333)*(0.3333)*(0.000000) + 301 302 d VARIANCE0.00 303 304 STANDARD DEVIATIONSQRT(variance)- WEIGHTS 0.3333 0.3333 0.3333 RETURN RR = RS RT- 0.0350 0.1555 0.2238 WS- C EXPECTED RETURN ON PORTFOLIO- WR RR +WS RS+WT RT- 0.1381 SD(J) - SD(K) SD(L) = PORTFOLIO VARIANCE (W1)A2 (SD1)A2 +(W2)A2* (SD2)A2 (W3)A2 (SD3)2+ 2 W1 W2 cOV(1,2) 2 W2*W3 COV(2,3)+2 W1 w3 cOV(1,3) SO FOR PORTFOLIO:(1 STOCK R, 2 STOCK S, 3 STOCK T) cOV(J,K)- COV(K,L) COV(J,L) = 0.0849985 0.2085415 0.0144681 2"(0.3333)*(0.3333)" (0.0144681)1 0.0941 ECONOMY, BEFORE AFTER BUYBACK Shell lo retrement futures margin PV, FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPV ROE std costing EPS%, E erences: OU55 08:32 12-04-2019

Home ert Page Layout Formulas Data Review V Add-Ins 義Cut AutoSum aCopy Format Painter Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Paste Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Alignment Cells dting NP316 NI NJ NK NL NM NO NP NQ NR NS NT NU 306 307 308 309 310 311 312 b 313 314 315 316 317 с 318 319 d VARIANCE OF PORTFOLIO 320 321 322 323 324 a EXPECTED RETURN 0.0350 0.1555 0.2238 ASSET VARIANCE 0.0000 0.0072 0.0435 STANDARD DEVIATIONN 0.0000 0.0850 0.2085 EXPECTED RETURN ON PORTFOLIO 0.1381 0.0088 0.0941 STANDARD DEVIATION OF PORTFOLIO capm-portfolio retirement futures margin PV, FV, ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPV ROE std costin ECONOMY, BEFORE AFTER BUYBACK Shell erences: OU53