Problem 11-9 Consider the following information: Rate of Return if State Occurs
ID: 2711052 • Letter: P
Question
Problem 11-9
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
.40
.18
.40
.29
Good
.25
.15
.22
.11
Poor
.30
.01
–.09
–.06
Bust
.05
–.07
–.24
–.09
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.)
Expected return
%
b-1.
What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places.)
Variance of this portfolio
b-2.
What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation
%
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Stock C
Boom
.40
.18
.40
.29
Good
.25
.15
.22
.11
Poor
.30
.01
–.09
–.06
Bust
.05
–.07
–.24
–.09
Explanation / Answer
A real estate agent has collected a random sample of 40 houses that were recently sold in Grand Rapids, Michigan. She is interested in comparing the appraised value and recent selling price (in thousands of dollars) of the houses in this particular market. The values of these two variables for each of the 40 randomly selected houses are shown below.