Problem 11-6 Security Returns If State Occurs State of Probability of Economy St
ID: 2711059 • Letter: P
Question
Problem 11-6
Security Returns
If State Occurs
State of
Probability of
Economy
State of Economy
Roll
Ross
Bust
.30
-12
%
16
%
Boom
.70
23
6
Calculate the expected return on a portfolio of 55 percent Roll and 45 percent Ross by filling in the following table: (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
State of
Economy
Probability of
State of Economy
Portfolio Return
If State Occurs
Product
Bust
.30
%
%
Boom
.70
%
%
E(RP) =
%
Security Returns
If State Occurs
State of
Probability of
Economy
State of Economy
Roll
Ross
Bust
.30
-12
%
16
%
Boom
.70
23
6
Explanation / Answer
ANSWER:
We are 95% confident that the actual mean difference between the appraised values and selling prices of all the houses sold in Grand Rapids is between -$3785 and $561.