Question

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		.18		.359	.459	.339
Good		.42		.129	.109	.179
Poor		.32		.019	.029	−.065
Bust		.08		−.119	−.259	−.099

Requirement 1:

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. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Expected return of the portfolio

%

Requirement 2:

(a)	What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places (e.g., 32.16161).)

Variance of the portfolio

(b)	What is the standard deviation of this portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Standard deviation

%

Answer 1

Hello Sir/ Mam

Firstly, we'll calculated rate of return in each state of economy:

Now,

REQUIREMENT 1 = 11.39%

REQUIREMENT 2

Economy	Probability	Returns	(Return - Mean)^2 * P
Boom	18%	39.74%	0.0144713
Good	42%	13.42%	0.0001738
Poor	32%	-0.01%	0.0041571
Bust	8%	-17.50%	0.0066751
			0.0254773

Hence,

I hope this solves your doubt.

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