please include all the steps. Consider the following information: Rate of Return
ID: 2754147 • Letter: P
Question
please include all the steps.
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 0.76 0.11 0.31 0.07 Bust 0.24 0.15 0.13 0.19 Requirement 1: What is the expected return on an equally weighted portfolio of these three stocks? (Do not round your intermediate calculations.) Requirement 2: What is the variance of a portfolio invested 10 percent each in A and B and 80 percent in C? (Do not round your intermediate calculations.)
Explanation / Answer
State of Probability of Stock A Stock B Stock C Economy State of Economy Rate of Return Rate of Return Rate of Return A Poportion B Poportion C Poportion Expected Return OF A Expected Return OF B Expected Return OF C Total Porfoloio Return Boom 0.76 0.11 0.31 0.07 33.33% 33.33% 33.33% 2.7866% 7.8533% 1.7734% 12.4133% Bust 0.24 0.15 0.13 0.19 33.33% 33.33% 33.33% 1.2000% 1.0400% 1.5200% 3.7600% Total Portfolio Return 16.1733% Secutity A Secutity B Prbabilty Return Expected Retrurn Variance Co variance Calulation AB Prbabilty Return Expected Retrurn Variance 0.76 11 8.36 0.700416 -0.96 4.32 -3.15187 0.76 31 23.56 14.183424 0.24 15 3.6 2.217984 3.04 -13.68 -9.98093 0.24 13 3.12 44.914176 1 Expected Return 11.96 2.9184 Co Variance -13.1328 1 Expected Return 26.68 59.0976 SD 1.70833252 sd 7.687496341 Correlation -1 Secutity C Secutity B Prbabilty Return Expected Retrurn Variance Co variance Calulation BC Prbabilty Return Expected Retrurn Variance 0.76 7 5.32 6.303744 -2.88 4.32 -9.45562 0.76 31 23.56 14.183424 0.24 19 4.56 19.961856 9.12 -13.68 -29.9428 0.24 13 3.12 44.914176 1 Expected Return 9.88 26.2656 Co Variance -39.3984 1 Expected Return 26.68 59.0976 sd 5.124997561 sd 7.687496341 Correlation -1 Secutity C Secutity A Prbabilty Return Expected Retrurn Variance Co variance Calulation AC Prbabilty Return Expected Retrurn Variance 0.76 7 5.32 6.303744 -2.88 -0.96 2.101248 0.76 11 8.36 0.700416 0.24 19 4.56 19.961856 9.12 3.04 6.653952 0.24 15 3.6 2.217984 1 Expected Return 9.88 26.2656 Co Variance 8.7552 1 Expected Return 11.96 2.9184 sd 5.124997561 SD 1.70833252 Correlation 1.00 Portfololio Risk Prportion(1) Variance(2) SD(3) Corr (1*2)^2 Variance of the Porfolio A 0.1 2.9184 1.70833252 1 0.029184 0.262656 0.29184 B 0.1 59.0976 7.687496341 1 0.590976 6.303744 6.89472 C 0.8 26.2656 5.124997561 1 16.80998 1.400832 18.21082 1 25.39738
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