onsider the following information: Rate of Return if State Occurs State of Proba

Question

onsider the following information:

       Rate of Return if State Occurs
State of   Probability of  
Economy   State of Economy   Stock A   Stock B   Stock C
Boom   .25     .20     .48     .23
Good   .15     .14     .20     .11
Poor   .20     –.05     –.13     .00
Bust   .40     –.13     –.33     –.11

a.  
Your portfolio is invested 40 percent each in A and C, and 20 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Expected return   %

b-1.   What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places.)

Variance of this portfolio  

b-2.  
What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Standard deviation   %

Explanation / Answer

State of economy Prob. Of state of economy Stock A 40% of Inv. Stock B 20% 0f Inv. Stock C 40% of Inv. Prob. Rate of return of portfolio under the state of economy Sum of deviation from ERR Dev.^2*prob 1 2 3 4=3*.4 5 6=5*.2 7 8=7*.4 9=(2*4)+(2*6)+(2*8) 10=(e9-ER)^2+(g9-ER)^2+(i9-ER)^2 11=10*2 Boom   .25     .20     .48     .23 0.25 0.2 0.08 0.48 0.096 0.23 0.092 0.067 0.017164 0.004291 Good   .15     .14     .20     .11 0.15 0.14 0.056 0.2 0.04 0.11 0.044 0.021 0.00334 0.000501 Poor   .20

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.