Consider the following information: Requirement 1: Your portfolio is invested 29

Question

Consider the following information: Requirement 1: Your portfolio is invested 29 percent each in A and C and 42 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: 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

Explanation / Answer

Average Return = Sum of weights x Rate of return

Expected rate of return = Sum of returns x Probability

State

P

R

P x R

Boom

0.21

0.4042

0.084882

Good

0.39

0.1441

0.056199

Poor

0.29

-0.00289

-0.00084

Bust

0.11

0.181

0.01991

16.02%

Variance = sum of P x ( R- ER)^2

State

P

R

R- ER

P x ( R- ER)^2

Boom

0.21

0.4042

24.40%

0.012507387

Goood

0.39

0.1441

-1.61%

0.000100501

Poor

0.29

-0.00289

-16.30%

0.007709066

Bust

0.11

0.181

2.08%

4.78062E-05

0.02036

Standard Deviation = variance ^(0.50)

                                       = 0.02036^(0.50)

                                       =14.27%

State

P

R

P x R

Boom

0.21

0.4042

0.084882

Good

0.39

0.1441

0.056199

Poor

0.29

-0.00289

-0.00084

Bust

0.11

0.181

0.01991

16.02%

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