Consider the following information: Your portfolio is invested 25 percent each i

Question

Consider the following information:

Your portfolio is invested 25 percent each in A and C, and 50 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

   

Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C   Boom .35 .21 .42 .30   Good .20 .14 .21 .12   Poor .30 .02 –.09 –.05   Bust .15 –.06 –.26 –.09

Explanation / Answer

Probability Stock a Stock B Stock C 0.35 0.21 0.0735 0.42 0.147 0.3 0.105 0.2 0.14 0.028 0.21 0.042 0.12 0.024 0.3 0.02 0.006 -0.09 -0.027 -0.05 -0.015 0.15 -0.06 -0.009 -0.26 -0.039 -0.09 -0.0135 Total 0.0985 0.123 0.1005 Average Return 0.024625 0.03075 0.025125 2.46 3.07 2.51 Portfolio Return = 2.46*25%+2.51*25%+3.07*50% Portfolio Return = 2.28%

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