Returns and Standard Deviations Consider the following information:

Rate of Return...

Question

Returns and Standard Deviations Consider the following information:



 
 

Rate of   Return If State Occurs




State of Economy


Probability of State of Economy


Stock A


Stock B


Stock C




Boom


0.2


0.18


0.48


0.33




Good


0.4


0.11


0.18


0.15




Poor


0.3


0.05


-.09


-.05




Bust


0.1


-.03


-.32


-.09




a. Your portfolio is invested 25 percent each in A and C, and 50 percent in B. What is the expected return of the portfolio?
b. What is the variance of this portfolio? The standard deviation?

Robert · Accepted Answer

A Da VAR(A) B Db VAR(B) C Dc VAR©   
                          
  boom 0.2 0.18 0.088 0.00155 0.48 0.371 0.02753 0.33 0.228 0.01040   
  good 0.4 0.11 0.018 0.00013 0.18 0.071 0.00202 0.15 0.15 0.00900   
  poor 0.3 0.05 -0.042 0.00053 -0.09 -0.199 0.01188 -0.05 -0.152 0.00693   
  bust 0.1 -0.03 -0.122 0.00149 -0.32 -0.429 0.01840 -0.09 -0.192 0.

Returns and Standard Deviations Consider the following information: Rate of Return If State Occurs State of Economy Probability of State of Economy Stock A Stock B Stock C Boom 0.2 0.18 0.48 0.33 Good...

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		Rate of Return If State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B	Stock C
Boom	0.2	0.18	0.48	0.33
Good	0.4	0.11	0.18	0.15
Poor	0.3	0.05	-.09	-.05
Bust	0.1	-.03	-.32	-.09