Problem 11-10 Returns and Standard Deviations [LO 1, 2] Consider the following i

Question

Problem 11-10 Returns and Standard Deviations [LO 1, 2]

Consider the following information:

1) Your portfolio is invested 31 percent each in A and C and 38 percent in B. What is the expected return of the portfolio? (e.g., 32.16).)

Expected return of the portfolio:???????

2) What is the variance of this portfolio?  (e.g., 32.16161)

3) What is the standard deviation of this portfolio? (e.g., 32.16).)

Standard deviation:?????????

State of economy Probability of State of Economy Rate of Return If StateOccurs Stock A Stock B Stock C Boom .15 .356 .456 .336 Good .45 .126 .106 .176 Poor .35 .016 .026 .056 Bust .05 .116 .256 .096

Explanation / Answer

A B C D E F G H I State of economy Stock A Stock B Stock C Stock A Stock B Stock C the portfolio return in each state of the economy(A*D)+(B*E)+(C*F) Probability of State of Economy expected Return on portfolio G*H Variance(I-10.94)^2*H Boom 0.356 0.456 0.336 0.31 0.38 0.31 38.8% 0.15 5.82% 0.011626569 Good 0.126 0.106 0.176 0.31 0.38 0.31 13.4% 0.45 6.03% 0.000270267 Poor 0.016 0.026 -0.056 0.31 0.38 0.31 -0.3% 0.35 -0.09% 0.004383582 Bust -0.116 -0.256 -0.096 0.31 0.38 0.31 -16.3% 0.05 -0.82% 0.003709897 expected Return on portfolio 10.94% 0.019990315 The standard deviation Sqr root of variance 14.14%

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