1. 13.1 Expected return and standard deviation This problem will give you some practice calculating measures of prospective portfolio performance. There are two assets and three states of the economy:

What are the expected returns and standard deviations for these two shares?

State of Probability of economy state of economy Rate of return if state occurs Share A Share B Recession 0.20 -0.15 0.20 Normal 0.50 0.20 0.30 Boom 0.30 0.60 0.40