Question: Portfolio expected return and standard deviation Consider the following predicted returns for two stocks: Economy Probability of State of the Economy Return on Stock A

Portfolio expected return and standard deviation

Consider the following predicted returns for two stocks:

Economy

Probability of State of the Economy

Return on Stock A

Return on Stock B

Severe recession

.10

(.30)

(.15)

Mild recession

.20

(.25)

(.10)

Normal growth

.50

.20

.20

Boom

.20

.40

.20

If you invest 40% of your money in Stock A and 60% in Stock B:

a. What will your portfolios return be in each state of the economy? (Rounding: Do not round intermediate calculations. Enter your final answers as decimals with four decimal places, e.g., if your answer is 9.5%, you would enter .0950.)

Severe recession:

Mild recession:

Normal growth:

Boom:

b. What will your portfolios expected return be? (Rounding: Do not round intermediate calculations. Enter your final answer as a decimal with four decimal places, e.g., if your answer is 9.5%, you would enter .0950.)

c. What will your portfolios standard deviation be? (Rounding: Do not round intermediate calculations. Enter your final answer as a decimal with four decimal places, e.g., if your answer is 9.5%, you would enter .0950.)

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