Consider the following information: Your portfolio is invested 28 percent each i
ID: 2709057 • Letter: C
Question
Consider the following information:
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 calculaitons. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .31 .41 .32 Good .50 .18 .12 .11 Poor .25 .04 .07 .05 Bust .05 .15 .27 .08Explanation / Answer
Expected Return on Portfolio 11.52 % Variance 0.02363032 Standard Deviation 15.37 % Stock A Stock B Stock C State of Probability ROR Probability*ROR ROR Probability*ROR ROR Probability*ROR Economy Boom 0.20 0.31 0.062 0.41 0.082 0.32 0.064 Good 0.50 0.18 0.09 0.12 0.06 0.11 0.055 Poor 0.25 -0.04 -0.01 -0.07 -0.0175 -0.05 -0.0125 Bust 0.05 -0.15 -0.0075 -0.27 -0.0135 -0.08 -0.004 Expected return 0.1345 0.111 0.1025 Propotion of investment in portfolio Stock A 28% Stock B 44% Stock C 28% Expected return = 0.28 * expected return of A + 0.44 * expected return of B + 0.28 * expected return of c Expected return = 0.28 * 0.1345 + 0.44 * 0.111 + 0.28 * 0.1025 0.1152 State of Economy probabiliy Return on portfolio Expected return (return-expected return) (return-expectedreturn)^2 probability * (return-expected return)^2 Boom 0.2 0.3568 0.1152 0.2416 0.05837056 0.011674112 Good 0.5 0.134 0.1152 0.0188 0.00035344 0.00017672 Poor 0.25 -0.056 0.1152 -0.1712 0.02930944 0.00732736 Bust 0.05 -0.1832 0.1152 -0.2984 0.08904256 0.004452128 Variance 0.02363032 Return on Portfolio = 0.28*return on stock A + 0.44*return on stock B + 0.28 * return on stock C Standard Deviation = Square root of (variance) = (0.02363032)^1/2 0.153721566
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