0.099 Your portfolio is invested 28 percent each in A and C and 44 percent in B.

Question

0.099

Your portfolio is invested 28 percent each in A and C and 44 percent in B. What is the expected return of the portfolio? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What is the variance of this portfolio? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 5 decimal places (e.g., 32.16161).)

Consider the following information:

Explanation / Answer

a. The return of portfolio in Boom economy = 0.28*0.359 + 0.28 *0.339 + 0.44*0.459 = 0.3974

The return of the portfolio in Good economy = 0.28* 0.129 + 0.28*0.179 + 0.44*0.109 = 0.1342

The return of the portfolio in Poor economy =0.28 *0.019 + 0.28*-0.065 + 0.44*0.029 = -0.00012

The return of the portfolio in Bust economy = 0.28*-0.119 + 0.28*-0.099 + 0.44 * -0.259 = -0.175

Hence the expected return of the portfolio = 0.18*0.3974 + 0.42*0.1342 + 0.32*-0.00012 + 0.08*-0.175 = 0.1139

Expected return of the portfolio = 0.1139 = 11.39%

b. The variance of the portfolio is as calculated in the table below:

Variance of th portfolio = 0.02548 ( Rounded to 5 decimals)

Economy Prob - P Return R R - E ( R ) [R - E ( R )]^2 [R - E ( R )]^2 * P Boom 0.18 0.3974 0.283542 0.080396293 0.014471333 Good 0.42 0.1342 0.020342 0.000413813 0.000173802 Poor 0.32 -0.00012 -0.11398 0.012990893 0.004157086 Bust 0.08 -0.175 -0.28886 0.083438713 0.006675097 Expected Return E ( R ) 11.39% Varinace 0.025477317 Std. deviation 15.96%

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