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ignore the top part. need the expected return for stock C and stock T. also the...


What are the portfolio weights for a portfolio that has 115 shares of Stock A that sell for $43 per share and 180 shares of S
State Probability Boom 0.25 0.16 0.23 Normal 0.40 0.11 0.15 Recession ??? 0.03 -0.05

ignore the top part. need the expected return for stock C and stock T. also the variance for stock C and standard deviation for stock T. thanks
What are the portfolio weights for a portfolio that has 115 shares of Stock A that sell for $43 per share and 180 shares of Stock B that sell for $19 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
State Probability Boom 0.25 0.16 0.23 Normal 0.40 0.11 0.15 Recession ??? 0.03 -0.05
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Answer #1

The probability of total state is 1. Thus, probability of Recession is = 1 - probability of Boom - probability of Normal

= 1 - 0.25 - 0.40

= 0.35

Calculating the Expected Return, Variance and Standard Deviation:-

Prob (P) Stock Return (C) (%) Stock Return (T) (%) (P)*(C) (P)*(T) Deviation        [R-E(C)] Deviation        [R-E(T)] [R-E(C)]^2 {[R-E(C)]^2}*(P) [R-E(T)]^2 {[R-E(T)]^2}*(P)
0.25 0.1600 0.2300 0.0400 0.0575 0.0655 0.1125 0.0043 0.0011 0.0127 0.0032
0.40 0.1100 0.1500 0.0440 0.0600 0.0155 0.0325 0.0002 0.0001 0.0011 0.0004
0.35 0.0300 -0.0500 0.0105 -0.0175 -0.0645 -0.1675 0.0042 0.0015 0.0281 0.0098
0.09 0.12                        0.0026               0.0134

- Expected return for Stock C = \sum (P)*(C)

= 0.09

- Expected return for Stock T = \sum (P)*(T)

= 0.12

- Variance for Stock C = \sum {[R-E(C)]^2}*(P)

= 0.0026

- Standard Deviation for Stock T = \sqrt{\sum {[R-E(T)]^2}*(P)} = \sqrt{0.0134}

= 0.1158

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