Question

Use the following information to answer questions 1 through 10: You are trying to form portfolios...

Use the following information to answer questions 1 through 10:

You are trying to form portfolios based on the following information:

State

Probability

Return A

Return B

Poor

20.0%

-4.0%

-4.0%

Normal

40.0%

3.0%

8.0%

Good

30.0%

10.0%

8.0%

Very Good

10.0%

30.0%

10.0%

You also know the risk-free rate is 5%.

Use the following information for questions 6 to 9. Suppose we construct a portfolio with 20% of Stock A and 80% Stock B.

Question 6: Calculate the Expected Return of the Portfolio

Question 7: Calculate the Standard Deviation of the Portfolio

Question 8: Calculate the Sharpe Ratio of the Portfolio

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