Question

FINANCE 304 More Return/ Risk Problems There are two assets and two Prepared by Dr. NAME: Sam Watchison are two assets and two states of the economy. State of Probability of State Economy Rate of Return of Stock A Rate of Return of Stock B Recession Boom 15% 0.60 0.40 -10% 30 Suppose you have $30,000 total. If you B, what will be the expected return ve $30,000 total. If you put $9,000 in Stock A and the remainder in Stock be the expected return and standard deviation on your portfolio? points) hun stock

Answer 1

weighted return (weight x return) state of economy rate of return if state occurs deviation^2x probability deviation (weighted return- deviation 2 expected return) 0.800% 0.006400% -1.200% 0.014400% Recession Boom -10% 30% 15% -5% -3.000% 9.000% weighted sum probability expected return (sum of weighted return) 7.500% 0.60 4.50% 5.500% 0.40 expected return 6.70% 10.500% -3.500% 0.000038400 0.00005760 2.20% Weight 30.00% 70.00% Variance Standard deviation = variance10.5 0.00010 0.98% answer: 1) Expected return 2) Standard deviation = 6.70% 0.98%