Consider the following information: a. Your portfolio is invested 20 percent eac

Question

Consider the following information: a. Your portfolio is invested 20 percent each in A and C, and 60 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.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places.) b-2. What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Answer a

Boom => (0.18 * 0.20) + (0.45 * 0.60) +(0.23 * 0.20) => 0.352

Good => (0.16 * 0.20) + (0.18 * 0.60) +(0.13 * 0.20) => 0.166

Poor => (-0.05 * 0.20) + (-0.15 * 0.60) +(0.02 * 0.20) => -0.096

Bust => (-0.15 * 0.20) + (-0.35 * 0.60) +(-0.11 * 0.20) => -0.262

Expected Return of a portfoilio is =>

=> (0.352 * 0.20) + (0.166 * 0.15) + (-0.096 * 0.40) + (-0.262 * 0.25)

Expected Return of a portfoilio is => -0.0086 or -0.86%

Variance => 0.20(0.352 - (-0.0086))2 + 0.15(0.166 - (-0.0086))2 + 0.40(-0.096 - (-0.0086))2 + 0.25(-0.262 - (-0.0086))2

Variance => 0.0497

Standard Deviation => 0.04971/2

Standard Deviation => 0.2229 or 22.29%

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