Question

Consider the following information.

a) Your portfolio is invested 25% each in Stock A and C, and 50% in Stock B. What is the expected return of the portfolio?

b)What is the variance of this portfolio? What is the standard deviation?

I'd like to learn how to do this in excel please.

				ROR if State Occurs
State of Economy		Probability	A	B	C
Boom		0.15	0.35	0.45	0.33
Good		0.5	0.12	0.1	0.17
Poor		0.25	0.01	0.02	-0.05
Bust		0.1	-0.11	-0.25	-.9

Answer 1

State of	Probability of
Economy	State of Economy		Stock A		Stock B			stock C
Boom		0.15		0.35		0.45		0.33
good		0.5		0.12		0.1		0.17
poor		0.25		0.1		0.02		-0.05
bust		0.1		-0.11		-0.25		-0.09
		weight		0.25		0.5		0.25
		return		0.1265		0.0975		0.113
		weight * return		0.031625		0.04875		0.02825
		Expected return of portfolio E(X)	10.86%
		weight * return^2		0.0040005625		0.004753125		0.00319225
		E(X^2)	0.0119459375
		variance of portfolio	0.00015
		standard deviation of portfolio	1.21%