Question

A. Ex-Post Standard Deviation A stock had historical monthly returns of -3%, 1%, 1.50%, 2%,-2% and 4%. Based on this data, the stock would have an annual expected return of ______ and an annual standard deviation of ______.

B. Portfolio Returns Suppose you have $9,800 invested in a stock portfolio in October. You have $4,600 invested in Stock A, $3,100 in Stock B and $2,100 in Stock C. The HPR for the month of September for Stock A was 2.4%, for Stock B the HPR was -5.4% and for Stock C the HPR was 3.9%. What was the average HPR for the portfolio for the month of October?

C. Ex-Ante Standard Deviation An analyst estimates a 27% probability of a recession next year, a 51% probability of normal economic growth and a 22% probability of a strong recovery. If a recession occurs a stock is projected to have a -16.2% return. With normal growth the stock will generate a 11.2% return and if the strong recovery occurs the stock will have a 26.2% rate of return. This stock's standard deviation is _______.

Answer 1

A.

	-3.0%
	1.0%
	1.5%
	2.0%
	-2.0%
	4.0%
average	0.58%
std dev	2.6157%

B.

	Amount	weight	return	weight*return
A	4,600.00	0.4694	2.40%	0.0113
B	3,100.00	0.3163	-5.40%	-0.0171
C	2,100.00	0.2143	3.90%	0.0084

return = 0.25%

C.

p(x)	return	p*x	p*(x - mean)^2
0.27	-16.2%	-0.04374	0.0146605
0.51	11.2%	0.05712	0.0008565
0.22	26.2%	0.05764	0.008024139

Standard dev = 15.34%