Question

Consider the following information:    Rate of Return if State Occurs   State of Probability of   Economy...

Consider the following information:

  

Rate of Return if State Occurs
  State of Probability of
  Economy State of Economy Stock A Stock B Stock C
  Boom .20 .32 .42 .22
  Good .50 .17 .13 .11
  Poor .25 .04 .07 .05
  Bust .05 .12 .17 .09

  

a.

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 round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Expected return %

  

b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
  Variance   
b-2.

What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Standard deviation %

Homework Answers

Answer #1
State of Probability of
Economy State of Economy Stock A Stock B stock C
Boom 0.2 0.32 0.42 0.22
good 0.5 0.17 0.13 0.11
poor 0.25 -0.04 -0.07 -0.05
bust 0.05 -0.12 -0.17 -0.09
weight 0.28 0.44 0.28
return 0.133 0.123 0.082
weight * return 0.03724 0.05412 0.02296
Expected return of portfolio E(X) 11.43%
weight * return^2 0.00495292 0.00665676 0.00188272
E(X^2) 0.0134924
variance of portfolio 0.00042
standard deviation of portfolio 2.06%
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