Question

Consider the following information:

  

				Rate of Return if State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B			Stock C
Boom		.20			.38			.48			.28
Good		.50			.14			.19			.12
Poor		.20		–	.05		–	.08		–	.06
Bust		.10		–	.19		–	.23		–	.09

  

a.	Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return

%

  

b-1.	What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

Variance

b-2.	What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation

%

Answer 1

State Portfolio Return
0.20 =22%*0.38+56%*0.48+22%*0.28=41.40000%

0.50 =22%*0.14+56%*0.19+22%*0.12=16.36000%

0.20 =22%*(-0.05)+56%*(-0.08)+22%*(-0.06)=-6.90000%

0.10 =22%*(-0.19)+56%*(-0.23)+22%*(-0.09)=-19.04000%

1.
=0.20*41.40%+0.50*16.36%+0.20*(-6.90%)+0.10*(-19.04%)
=13.17600%

2.
=0.20*(41.40%-13.17600%)^2+0.50*(16.36%-13.17600%)^2+0.20*(-6.90%-13.17600%)^2+0.10*(-19.04%-13.17600%)^2
=0.034878398

3.
=sqrt(0.034878398)
=18.67576%