Consider the following information: Your portfolio is invested 35 percent each i

Question

Consider the following information:

Your portfolio is invested 35 percent each in A and C, and 30 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 .34 .26   Good .25 .11 .23 .08   Poor .30 –.02 –.10 –.03   Bust .10 –.10 –.18 –.10

Explanation / Answer

1 EXPECTED RETURN = 0.35*0.21-0.3*0.1+0.35*0.26 =13.1%

2 portfolio varaince

varaince = 0.003 0.35*(0.21-0.131)2 +0.35(0.26-0.131)2-0.30(-.131)2

standard deviation is square root of varaince i.e 1.79%

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