Find Variance of a protfolio Award: O out of 10.00 points 3 You did not Consider

Question

Find Variance of a protfolio Award: O out of 10.00 points 3 You did not Consider the following information: Rate of Return if Sta Probability of State of Economy State of Stock B 02 23 St .28 -.08 08 Boom Bust 70 .30 What is the variance of a portfolio invested 25 percent each in A and B and 50 percent in C? your answer to 5 decimal places, e.g., 32.16161.) Variance of a portolio 1022.65o00 o eBook & Resources eBook: 11.1 Expected Returns and Variances References Worksheet Learming Objective: 11-01 Calculate expected returns. Section: 11.1 Expected Reb Leaming Objective: 11-02 Explain the impact of Difficulty: 1 Basic MacBook Air

Explanation / Answer

Boom = 0.25 * 0.08 + 0.25 * 0.02 + 0.50 * 0.28

= 0.02 + 0.005 + 0.14

= 0.165 or 16.5%.

Bust = 0.25 * 0.17 + 0.25 * 0.23 + 0.50 * - 0.08

= 0.0425 + 0.0575 - 0.04

= 0.06 or 6%

Expected return = 0.70 * 0.165 + 0.30 * 0.06

= 0.1155 + 0.018

= 0.1335 or 13.35%

Variance = 0.70 (0.165 - 0.1335)2 + 0.30 (0.06 - 0.1335)2

= 0.000695 + 0.005402

= 0.006097.

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