Question

1. Consider following information:

	Probability of the state of economy	Rate of return if state occurs
		Stock SSS
Recession	0.1	4 %
Normal	0.5	10 %
Boom	0.4	12.1 %

Calculate the expected return of a stock. Express your answer as %.

2. Consider the same info as before:

	Probability of the state of economy	Rate of return if state occurs
		Stock SSS
Recession	0.1	4 %
Normal	0.5	10 %
Boom	0.4	12.1 %

Calculate the standard deviation of a stock return. Express your answer as %.

3. Refer back to previous questions. If you are holding a portfolio invested 60% in stock SSS and 40% in market portfolio and the expected return of this portfolio is 10%. What must be the rate of return on market portfolio? Express you answer as a %.

Answer 1