Consider the following information: a. what is the expected return on an equally

Question

Consider the following information:

a. what is the expected return on an equally weighted portfolio of these three stocks?

b. what is the variancce of a portfolio invested 22 percent each in A and B and 56 percen in C?

*** answer as a percent rouned to 2 decimals ***

Consider the following information:

Rate of Return If State Occurs State of   Economy Probability of State of Economy Stock A Stock B Stock C   Boom 0.56 0.06 0.14 0.34   Bust 0.44 0.15 0.05 .04

a. what is the expected return on an equally weighted portfolio of these three stocks?

b. what is the variancce of a portfolio invested 22 percent each in A and B and 56 percen in C?

*** answer as a percent rouned to 2 decimals ***

Explanation / Answer

Return if state occurs Expected Return State of Economy Probability Stock A Stock B Stock C Stock A Stock B Stock C Boom 0.56 0.06 0.14 0.34 0.0336 0.0784 0.1904 Bust 0.44 0.15 0.05 -0.04 0.066 0.022 -0.0176 Expected Return of individual stock 0.0996 0.1004 0.1728 Question a. Weighted Portfolio Stocks Expected Return Weights Return Stock A 0.0996 0.3333 0.03320 Stock B 0.1004 0.3333 0.03347 Stock C 0.1728 0.3333 0.05760 Portfolio return 0.12427 Answer: 12.43% Question b. Weighted Portfolio Stocks Expected Return Weights Return Variance Stock A 0.0996 0.2200 0.02191 -0.04117 Stock B 0.1004 0.2200 0.02209 -0.04037 Stock C 0.1728 0.5600 0.09677 0.03203 Portfolio return 0.14077 -0.04950 Weighted return = expected return x weights Variance = sum of (Expected return of individual stock - weighted expected portfolio return)

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.