Question
Expected return and standard deviation. Use the following information to answer the questions: State of Economy Probability of State Return on Asset R in State
Expected return and standard deviation. Use the following information to answer the questions:
State of Economy | Probability of State | Return on Asset R in State | Return on Asset S in State | Return on Asset T in State | |||||
Boom | 0.27 | 0.025 | 0.280 | 0.440 | |||||
Growth | 0.37 | 0.025 | 0.130 | 0.350 | |||||
Stagnant | 0.22 | 0.025 | 0.160 | 0.040 | |||||
Recession | 0.14 | 0.025 | 0.035 | 0.165 |
a.What is the expected return of each asset?
b.What are the variance and the standard deviation of each asset?
c.What is the expected return of a portfolio with equal investment in all three assets?
d.What is the portfolio's variance and standard deviation using the same asset weights in part (c)?
Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type.
a. What is the expected return of asset R?
The expected return of asset S is
The expected return of asset T is
b. What is the variance of asset R?
The variance of asset S is
The variance of asset T is
c.What is the expected return of a portfolio with equal investment in all three assets?
d.What is the portfolio's variance and standard deviation using the same asset weights in part (c)?
The expected return of the portfolio in the boom state is
The expected return of the portfolio in the growth state is
The expected return of the portfolio in the stagnant state is
The expected return of the portfolio in the recession state is
The variance of the portfolio is:
The standard deviation of the portfolio is:
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