Question

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.)

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

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