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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