According to the information given above answer the following questions:

 

1. What is the portfolio’s expected return?
2. What is the variance of the portfolio and standard deviation?
3. If you have to choose only one type of securities (stock A, B, C or D) which one will you choose and why? To answer this question, you need to calculate the expected return for each stock and the standard deviation, and compare their values.
4. What is the expected return and variance of a portfolio invested 25% each in A, B, C and D? Will the resulting portfolio structure bring you a higher expected return?
5. How should you change the shares of securities A, B, C and D in your portfolio in order to minimize risk and maximize expected returns? Explain your answers.

* You should describe each step in detail and provide intermediate calculations. Add tables from Excel if necessary.

*Write your answers after each question.

* Be careful when rounding. Leave two decimal places

Transcribed Image Text:

Rate of Return Probability Dollar State of of State of Economy Economy Boom Good Poor Bust invested 20,000 10,000 40,000 30,000 Stock B 30% Stock A Stock A Stock C Stock D 10% 45% 33% -20% 60% 12% 10% 15% -5% 20% 1% -15% -5% 15% 10% -20% -30% -9% 35% Rate of Return Probability Dollar State of of State of Economy Economy Boom Good Poor Bust invested 20,000 10,000 40,000 30,000 Stock B 30% Stock A Stock A Stock C Stock D 10% 45% 33% -20% 60% 12% 10% 15% -5% 20% 1% -15% -5% 15% 10% -20% -30% -9% 35%

Answer rating: 100% (QA)

1 Expected Return SUM Return i x Probability i Stock A 103060122011020 372022 84 Stock B 10456010201... View the full answer