An investor calculates his return and risk in €. The investor has invested in a U.S. portfolio now worth $1,000. The investor thinks that there is a 40% chance that the portfolio will be worth $1,300 one year from now and a 60% chance that it will be worth $900. 

The € is now worth $1.07 and the investor thinks that there is a 50% chance that it will be worth $1.00 one year from now and a 50% chance that it will be worth $1.15. 

What is the expected return on this portfolio, in €'s, and What is the standard deviation of the return, in €'s? (Assume that the return on the portfolio in $ is independent of the $/€ exchange rate).

Answer rating: 100% (QA)

To calculate the expected return on the portfolio we first need to calculate the expected value of t... View the full answer