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Consider the following information: State of Probability of Rate of Return If State Occurs Economy State...

Consider the following information:

State of Probability of Rate of Return If State Occurs
Economy State of Economy Stock A Stock B Stock C
Boom .15 .350 .450 .330
Good .45 .120 .100 .170
Poor .35 .010 .020 − .050
Bust .05 − .110 − .250 − .090

Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio?

Expected return             %

What is the variance of this portfolio?

Variance            

What is the standard deviation of this portfolio?

Standard deviation             %

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Answer #1

K3 B C Weighted returns if Expected Expected State of Rate of returns if 1 econom state occurs portfolio Probability return state occurs (WeightxReturn) return (r) 3 Boomm 4 Good 5 Poor 6 Bust 35% | 12%) 1%) 11% 45% | 10% | 29 -25%) 33%) 17% | -5%) -9%) 10.50%) 18.00%) 9.90% 3.60%) 4.00%) 5.10% 0.30%) 0.80%)-1.50% -3.30%)-10.00%)-2.70% 38.40% 12.70% -0.40% 16.00% 0.15 0.45 0.35 0.05 5.76% 27.87% 5.72% 2.17% -0.14%)-10.94% -0.80%)-26.54% 1.15% 0.05% 1.20% 1.16% 0.02% 0.42% 0.35% 8 weights | 30% 40% 30% Expected return ( μ ) | 10.54% 0.01956 Variance (o^2) Standard deviation (a) 10 13.99%

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