Please help with Expected return and Standard deviation. Thanks so Much!!!! 1. E

Question

Please help with Expected return and Standard deviation.

Thanks so Much!!!!

1. Expected return and standard deviation Wilson holds a two-stock portfolio that invests equally in Kelevra Industries and Old Glory Insurance Company (50% of his portfolio is in each stock). Each stock's expected return for the next year will depend on market conditions. The stocks' expected returns if there are poor, average, or great market conditions are shown below: Old Glory Insurance Co -2% 5% 14% State of Economy Poor Average Great Probability of State of Economy 0.25 0.50 0.25 Kelevra Industries -12% 14% 48% What is the portfolio's expected return over the next year? 10.25% 11.25% 11.00% 10.50% 10.75% O O O O What is the expected standard devlation of portfolio returns? 13.47% 10.99% 12.38% 10.65% 12.74% O O

Explanation / Answer

Portfolio expected return = Probablity1 * ((weight*kelevra industries) + (weight*old glory)) + Probablity2 * ((weight*kelevra industries) + (weight*old glory)) + Probablity3 * ((weight*kelevra industries) + (weight*old glory))

Portfolio expected return = 0.25* (0.5 * -0.12 + 0.5 * 0.02) + 0.5 * (0.5*0.14 + 0.5*0.06) + 0.25 * (0.5*0.48 + 0.5*0.14)

Portfolio expected return = -0.0175 + 0.05 + 0.0725

Portfolio expected return = 11%

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