Question

Problem 12: Betty and Bob are interested in investing in two stocks, A and B, whose rates of return are given as per: Rate for B Rate for A Year 30 20 1 .10 -.30 .50 2 30 3 They form a portfolio of A and B weighted so that 50% of the initial investment is in A and 50% of the initial investment is in B. Assuming that each year's data is equally important, find the expected return of the portfolio, E(Rp), and the standard deviation of the portfolio, oRp). Solve the problem if one now assumes that the data of year 1 is half as important as year 2, and year 2 is half as important as year 3.

Answer 1

Solution Situation I Cach year'k data is aqually PaportawT PRA-P(Re-B) PRa A (R- Yaor Perob Ra Ra Pea PRa a.005890 0.002967 0.038449 20 0.333 30 0.047 0i0 001495 t 0.333 30 10 .100-0-033 0.0 62434 3 o333 6.023739 2 O.005890 O O16254 .50 30 0.166 O.00 .044851 0.OS7719 O.035519 0.167 O10878 O.133 13.20 LA 16.7o 1, CB A O.133 YB = O.161 O.33 on 33/ 18-85% O.10818 Cov - oos710 OST719 0.24 63 on 24.03% E (Rp) 13.30%x 0.50 +16-70 xO.so 6.65Y t 8-35 Y 15% WA -Iat n A WB-Snveststn

X A + 2 AR COV 2 (322 6.52)+ C18.852x0.2 + 2 (0.5)(0.s)C 24.03)2 X 272.25 t88-83 288 .72 649.१0 25.497 (

Sttuatian Let iompertance 42 be Year 3 2 is is 22 and, 1 Lo, prapenian be. Yean 4nt2+ 2 Year 2- D-286 1 O.STI 4u

DATE FAGE -O.000463 I 300-0286 0 0429 0.000114 0.001871 O.143 20 0.043152 0.023328 2 0.286-o J0-10-00859 0.02860.0798 23 3 0.57 .30 02255 O-1713 0.042152 0.0O7473 So O.0326 72 0.060437 O-2283 0.1856 0.122089 TA 22.83% =0.22&3 TA=O122099 No032672 34-9% O.34 94 an O.1807 on 18.07 Cov No.060427 02458 n 24.58% E (Rp)OA +sx R 22-83 Y xO.S 18 S6 20.695% x0 S 20.70 (Apprex V(34A xauIP01205) 205)6S) (20792 + 305 2009 +81.6312 +214.24 V601-08 24-52%4 24.52/.

PLEASE CLVE US EEEDBACK A PPRECIATE EEEORTS oUR To Comment bila thn Any aubt