Given the following information, calculate the expected return and standard devi

Question

Given the following information, calculate the expected return and standard deviation for a portfolio that has 36 percent invested in Stock A, 38 percent in Stock B, and the balance in Stock C. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

       Returns
State of   Probability of  
Economy   State of Economy   Stock A   Stock B   Stock C
Boom      .40      19   %   20   %   25   %
Bust      .60      11      0      –11     

  
Expected return   %
Standard deviation   %

Explanation / Answer

Answer: Calculation of the expected return:

Boom: E(Rp) = .36(.19) + .38(.20) + .26(.25) = .2094 or 20.94%

Bust:    E(Rp) = .36(.11) + .38(.0) + .26(

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