Economic Probability State of Occurrence Rate of Return if State Occurs c. D AB B AC AD EXHIBIT 10.2 Estimated Returns for Four Individual Investments and Three Portfolios Very poor Poor Average Good Very good 0.10 0.20 0.40 0.20 0.10 1.00 -10% o 10 20 30 30% -25% 20 5 10 15 o 35 -10 55 15% 10 o 25 35 10% -17.5% 10 -2.5 10 12.5 10 27.5 10 42.5 2.5% 5.0 5.0 22.5 32.5 Expected rate of return Standard deviation 10.0% 11.0% 10.0% 15.0% 12.0% 11.0% 21.9% 12.1% 10.0% 0.0% 12.5% 16.4% 11.0% 10.1% a. Construct an equal weighted (50/50) portfolio of investments B and C. What are the expected rate of return and standard deviation of the portfolio? Ex- plain your results. b. Construct an equal weighted (50/50) portfolio of investments B and D. What are the expected rate of return and standard deviation of the portfolio? Ex- plain your results