I previously posted this question, but the answers I was provided were wrong. Pl
ID: 2768050 • Letter: I
Question
I previously posted this question, but the answers I was provided were wrong. Please make sure the answers are correct, I want to understand how to calculate this. Thanks!!
value: 16.00 points Consider the following information: Rate of Return if State Occurs Probability of State of Economy Boom Good Poor Bust State of Economy 0.15 0.55 0.25 0.05 Stock A Stock B 0.43 0.14 Stock C 0.33 0.18 0.05 - 0.13 0.23 0.12 -0.06 -0.10 -0.08 - 0.18 a. Your portfolio is invested 26 percent each in A and C, and 48 percent in B. What is the expected return of the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16)) Expected return b-1 What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161) Variance b-2 What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Standard deviationExplanation / Answer
Answer
Answer (a)
Probability of state of economy
Stock A
Expected return
(X - mean)
(X - mean)2
P*(X - mean)2
P
X
P*X
0.15
0.33
0.0495
0.2005
0.0402
0.0060
0.55
0.18
0.099
0.0505
0.0026
0.0014
0.25
-0.05
-0.0125
-0.1795
0.0322
0.0081
0.05
-0.13
-0.0065
-0.2595
0.0673
0.0034
Expected return (Mean)
0.1295
Variance
0.0189
Standard deviation = square root of (variance)
0.1373
Probability of state of economy
Stock B
Expected return
(X - mean)
(X - mean)2
P*(X - mean)2
P
X
P*X
0.15
0.43
0.0645
0.3175
0.1008
0.0151
0.55
0.14
0.077
0.0275
0.0008
0.0004
0.25
-0.08
-0.02
-0.1925
0.0371
0.0093
0.05
-0.18
-0.009
-0.2925
0.0856
0.0043
Expected return (Mean)
0.1125
Variance
0.0291
Standard deviation = square root of (variance)
0.1705
Probability of state of economy
Stock C
Expected return
(X - mean)
(X - mean)2
P*(X - mean)2
P
X
P*X
0.15
0.23
0.0345
0.1495
0.0224
0.0034
0.55
0.12
0.066
0.0395
0.0016
0.0009
0.25
-0.06
-0.015
-0.1405
0.0197
0.0049
0.05
-0.1
-0.005
-0.1805
0.0326
0.0016
Expected return (Mean)
0.0805
Variance
0.0108
Standard deviation = square root of (variance)
0.1038
Stock
Expected return
Weight
Expected return
A
0.1295
0.26
0.0337
B
0.1125
0.48
0.0540
C
0.0805
0.26
0.0209
1
Expected return of portfolio
0.1086
Answer : Expected return of portfolio is 0.1086
Probability of state of economy
Stock A
Expected return
(X - mean)
(X - mean)2
P*(X - mean)2
P
X
P*X
0.15
0.33
0.0495
0.2005
0.0402
0.0060
0.55
0.18
0.099
0.0505
0.0026
0.0014
0.25
-0.05
-0.0125
-0.1795
0.0322
0.0081
0.05
-0.13
-0.0065
-0.2595
0.0673
0.0034
Expected return (Mean)
0.1295
Variance
0.0189
Standard deviation = square root of (variance)
0.1373