Question

Given the following information, calculate the expected return and standard deviation for a portfolio that has 27 percent invested in Stock A, 28 percent in Stock B, and the balance in Stock C. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Returns State of Economy Boom Bust Probability of State of Economy 0.30 0.70 Stock A 16% 17 Stock B 19% Stock C 26% -17 Expected return Standard deviation

Answer 1

Page ne Date Caleulaliom Stock A Balalely dr x-5 Raturm limh) (x) .147 16 .30 063 3 70 Varianee (EPd) = Expacted Returm C) 16.70- (.30x16 t.70Xi 7) 21 Variomes Standand eniatian 46 11 Stock B aelaly Pdr dyey7 Roturm lim) LY) (P) 19 '30 13.3 53.067 22 743 70 - S.7 Vaniamco (EPdt) 75.8) Expactad Ratisnm l7) (.36 x 19 +7o) -S.70-1. CEPx Variamee Stamdand Deiatian 8.71 7s.81 2

Page no: Date: Stack C dzz z-z Balalality Ratusrn lin.) (z) 271-803 30.1 26 30 116 8437 -12.9 -L7 Varumce lEPd2)- 3 38.29 Expectad Ralann Z) --4.17 (sxerzla1) tEPx2) +7 Marsianes 19.71 7 )Standand Dewiatam 388.29 1

Nous Calculatiom al Cauariamce a Couoriamce Betusaam Stock A B(COVAG) Padx xdy Budalily (P) dy dxc - 2. 793 13.3 .30 -197 3 -S.7 70 Covariamce LEPxdxdy) - 3.99

Date Page no Cauariamca betusaom Stock B cCCau ac) b) dy Cralatalty Pxdy x dz LP) 13.3 30. 1 20 099 30 -S.7 -12.9 70 S1 471 Couariamce LEPxdxxd) CCaue Ac) C) Couariamca batuaaam Stock A c dz Prdzxdz 6.321 - 2.709 30. .30 3 -12.9 70 Couariamca (ΕΡχdx/>). -9.03

Now Caleulatiamfar antfals Guiem Weght of Stock A gh oStock Wegh a Stock c C277.) (28) LCalanca) 100-27+28) 27 28 45 Paoffalis a) Expacad Relutm af Wleght ofEatal tkit ofxutad t etyt Return Stock X Stockc Returm Stock A Raturm of Stock B ofShek A (-५.।1.) 4S X x 16.7 t 4.26 28 x S. 70 y, 27 Expacted Retunm f atalie is 4.26

Date: Page no: b) Standand euiatam of Panthale 2 weyhttondand Oeualiam of C Stamdand x deght Oeiation af A A +/Stamdand x Oewatrom of fB х 11 t 2x Cauarionca baluaeam xWeght x leght Stock A 2x Couariane of xleg Stock Bc f legh t2x Couarionce r bkigh Wig ofA X Ac

2 46K.27) (8. 71 x- 28) t19. 71x.45) 28 x.45 t 2 x (-3.99)x.27x.28 + 2x 171.57 x t 2x 1-9.03) x.27 x.45 11 18 1 11-181 is o,Standand iatiam alfalo Expeckd Ratsn Standand euiatiam 4.26 11.181