Problem 11-10 Returns and Standard Deviations [LO 1, 2] Your portfolio is invest
ID: 2724220 • Letter: P
Question
Problem 11-10 Returns and Standard Deviations [LO 1, 2]
Your portfolio is invested 28 percent each in A and C and 44 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).)
What is the variance of this portfolio? (Do not round intermediate calculations. Round your answer to 5 decimal places (e.g., 32.16161).)
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).)
Consider the following information:Explanation / Answer
Part 1
Portfolio Return = sum of weights x R
State
P
RA
RB
RC
Rp
Boom
0.22
0.369
0.469
0.349
0.4074
Good
0.38
0.139
0.119
0.189
0.1442
Poor
0.28
0.029
0.039
-0.094
-0.00104
Bust
0.12
-0.129
-0.269
-0.109
-0.185
Expected Portfolio Return (ERp) = sum of P x Rp
State
P
Rp
P x Rp
Boom
0.22
0.4074
0.089628
Good
0.38
0.1442
0.054796
Poor
0.28
-0.00104
-0.00029
Bust
0.12
-0.185
-0.0222
0.121933
Expected Portfolio Return = 12.19%
Part 2
Variance =sum of P x (Rp - Erp)^2
State
P
Rp
Rp - Erp
P x (Rp - Erp)^2
Boom
0.22
0.4074
0.285467
0.01793
Good
0.38
0.1442
0.022267
0.00019
Poor
0.28
-0.00104
-0.12297
0.00423
Bust
0.12
-0.185
-0.30693
0.01130
Variance
0.03366
Variance = 0.03366
Part 3
Standard Deviation = variance ^0.50
= 0.03366^0.50
= 18.35%
State
P
RA
RB
RC
Rp
Boom
0.22
0.369
0.469
0.349
0.4074
Good
0.38
0.139
0.119
0.189
0.1442
Poor
0.28
0.029
0.039
-0.094
-0.00104
Bust
0.12
-0.129
-0.269
-0.109
-0.185