Consider the following information: Your portfolio is invested 30 percent each i
ID: 2749118 • Letter: C
Question
Consider the following information:
Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Expected return of the portfolio:
What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places (e.g., 32.16161).)
Variance of the portfolio:
What is the standard deviation of this portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Standard deviation:
Consider the following information:
Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .355 .455 .335 Good .40 .125 .105 .175 Poor .30 .015 .025 .055 Bust .10 .115 .255 .095 Requirement 1:Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Expected return of the portfolio:
Requirement 2: (a)What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places (e.g., 32.16161).)
Variance of the portfolio:
(b)What is the standard deviation of this portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Standard deviation:
Explanation / Answer
Rate of Return If State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Stock C
Boom
0.2
0.355
0.455
0.335
Good
0.4
0.125
0.105
0.175
Poor
0.3
0.015
0.025
-0.055
Bust
0.1
-0.115
-0.255
-0.095
% of Investment
30
40
30
Requirement 1:
Expected return of the portfolio:
Boom:=(0.3 x 0.355) + (0.40 x .0455 x) + ( 0.30 x 0.355)= 0.13475
Good: =(0.3 x 0.125) + (0.40 x .0.105 x) + ( 0.30 x 0.0.175)= 0.04695
Poor: =(0.3 x 0.015) + (0.40 x .025 x) + ( 0.30 x -0.055)= 0.00385
Bust: =(0.3 x -0.115) + (0.40 x -.0255 x) + ( 0.30 x -0.095)= -0.04755
E(R)=(0.2 x 0.13475)+ (0.4 x 0.04695)+(0.3 x 0.00385)+ (0.1 x -0.04755)= 0.04213
Requirement 2:
a)What is the variance of this portfolio?
=0.20 X (0.13475-0.04213)2 + 0.40 X (0.04695-0.04213)2 +0.30 X (0.00385-0.04213)2+0.10 X (-0.04755-0.04213)2=0.002968844
b)What is the standard deviation of this portfolio?
=(0.002968844).5=0.054487096
Rate of Return If State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Stock C
Boom
0.2
0.355
0.455
0.335
Good
0.4
0.125
0.105
0.175
Poor
0.3
0.015
0.025
-0.055
Bust
0.1
-0.115
-0.255
-0.095
% of Investment
30
40
30
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