The economy has 3 states and 3 assets that pay according to the following table.

(a) Using the assumed prices , what is the expected return for holding each asset?

(b) If there are 120 units of asset B and 60 units of asset A, what is the market cap?

(c) What is the matrix of covariance of assets A and B (use returns)?
 

Transcribed Image Text:

Asset Payout per state. X 10 A B 0 Notes 5 Pr(state) 0,33 Y 1055 0.33 N 5 10 5 0.33 Asset Payout per state. X 10 A B 0 Notes 5 Pr(state) 0,33 Y 1055 0.33 N 5 10 5 0.33

Answer rating: 100% (QA)

SOLUTION To calculate the expected return for each asset we will multiply the payout per state by the corresponding state probability and sum the results a Expected Return For asset X Expected ReturnX ... View the full answer