Returns and Standard Deviations Consider the following information:

State of economy Probability of state of economy Rate of return if state occurs Equity A

Equity B

Equity C

Boom 0.05 0.30 0.45 0.33 Good 0.45 0.12 0.10 0.15 Poor 0.35 0.01 −0.15 −0.05 Bust 0.15 −0.06 −0.30 −0.09

(a) Your portfolio is invested 30 per cent each in A and C, and 40 per cent in B. What is the expected return of the portfolio?

(b) What is the variance of this portfolio? The standard deviation?