1. Considering the uncertainty of the future, there is a 5% chance that economy will be in boom; 92% chance that economy will be normal and the remaining possibility of economy to be in recession. If...

QUESTION 1
    SOLUTION TO QUESTION 1: CALCULATION OF EXPECTED RETURN OF PORTFOLIO
        STATE OF ECONOMY    PROBABLITY    RETURN OF
XYZ CO. STOCK    EXPECTED RETURN OF THE STOCK
(%)
        Boom    5%    22%    1.10%
        Normal    92%    15.0%    13.80%
        Recision    3%    -2%    -0.06%
                    14.84%
    Expected Return Of the Stock=        (Expected return in boom economy*probablity)+(Expected return in normal economy*probablity)+(Expected return in boom economy*probablity)
     =        14.84%
        
QUESTION 2
        SOLUTION TO QUESTION 2: CALCULATION OF EXPECTED RETURN, STANDARD DEVIATION & VARIANCE
                STATE OF ECONOMY    PROBABLITY
(A)     RETURN OF
XYZ CO. STOCK IN EACH STATE OF ECONOMY
(B)    EXPECTED RETURN OF THE STOCK (taking into account all state of economy)
(%) ( C )    ACTUAL RETURN LESS
EXPECTED RETURN
(D)    STANDARD
DEVIATION    VARIANCE
                Good    6%    8.40%    0.50%    -0.57%    0.14    0.02
                Normal    60%    8.90%    5.34%    8.90%    6.9    47.61
                Recision    34%    9.20%    3.13%    9.20%    5.36    28.73
                            8.97%        12.40    76.36
                EXPECTED RETURN OF THE STOCK IS 8.97%
                STANDARD DEVIATION OF STOCK IS 12.40
                VARIANCE OF STOCK IS 76.36
        FORMULAS UNDELYING THE ABOVE CALCULATION ARE
    I)    Expected Return Of the Stock=            (Expected return in boom economy*probablity)+(Expected return in normal economy*probablity)+(Expected return in boom economy*probablity)
QUESTION 3
    SOLUTION TO QUESTION 3: CALCULATION OF EXPECTED RETURN OF FOLLOWING PORTFOLIO
        Stock    Number of Shares
(A)    Price per Share
(B)    Total Value of share
(A*B)
( C )    Weight
(D)    Expected Return
(E)    Expected Return
(D*E)
(F)
        A    400    $ 24.00    $ 9,600.00    0.43    13.60%    5.9%
        B    300    $ 13.00    $ 3,900.00    0.18    14.80%    2.6%
        C    100    $ 33.00    $ 3,300.00    0.15    7.40%    1.1%
        D    100    $ 54.00    $ 5,400.00    0.24    2.10%    0.5%
        TOTAL            $ 22,200.00    $ 1.00        10.1%
         Expected Return of portfolio= 10.1%
        NOTES
        I) Formula underlying above calculation are as follows
         Expected Return of the portfolio = (WA*ERA)+(WB*ERB)+(WC*ERC) +(WD*ERD),Where

         WA= Weight of A = (No. of share of A*Price per share of A)/Total value of portfolio.
         WB= Weight of B = (No. of share of B*Price per share of B)/Total...