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Calculate the following questions. Show all work and assumptions State of Economy Probability of state Returns if state occurs (%) BA BB BC Recession 0.10

Calculate the following questions. Show all work and assumptions

State of Economy

Probability of state

Returns if state occurs (%)

BA

BB

BC

Recession

0.10

-5

-5

-7.5

Normal

0.70

+15

+12

+15

Boom

0.20

+40

+28

+26

A portfolio is constructed with 30% invested in BA, 25% in BB and 45% in BC. What is the expected return of this portfolio? What is the standard deviation of this portfolio?

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