9. What is the expected return, standard deviation and variance of each stock? 1

Question

9. What is the expected return, standard deviation and variance of each stock?

10. If the investor invests $1000 if A, $2000 in B, $3000 in C and $4000 in D, what is the return of this portfolio in each state of the economy?

      A) What is the expected return, standard deviation and variance of the portfolio?

      B) Given the dollar investment given above, if Stock A, B, C and D have betas of 1.56, 1.32, 0.1 and 0.7, respectively, what is     the beta of this portfolio?

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Explanation / Answer

15% in A, 20% in B, 30% in C, D 35%

E(RA) = .4*-.15 + .3*.05 + .30*0.28 = .039 = 3.9%

Std. Dev = 0.2152

E(RB) = .4*.16 + .3*.10 + .30*0.06 = .0112 = 11.2%

Std. Dev = 0.0503

E(RC) = 0.061 = 6.1%

Std. Dev = 0.1852

E(RD) = 0.071 = 7.1%

Std. Dev = 0.1290

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