Homework IV

Ex 6. Calculating expected rate of retum and standard deviation of a portfolio. You invested 40% of your money on stock A and 60% on stock B (wA=0.4 and wn=0.6.). Calculate the expected rate of return and standard deviation of your portfolio. Check the following: Expected return A=12.5%, Expected return B=12.9%, Expected return M=10.8%, Variance A=26.25, Variance B=9.69, Variance M=17.76 Expected return on the portfolio =0.2(12.8)+0.3(12.4)+0.3(12.6)+0.2(13.4)=12.74% or Expected return on the portfolio= weight of A expected return on A + weight of B expected return on B =0.4(12.5)+0.6(12.9)=12.74% Portfolio yariance =0.2(12.812.74)2+0.3(12.412.74)2+0.3(12.612.74)2+0.2(13.412.74)2=0.1284 Standard deviation of the portfolio =0.1284=0.3583% HOMEWORK IV: Calculating expected rate of retum and standard deviation of the following Portfolios (use the information given in Ex. 6 above): Portfolio H1 means that you invested 20% of your moncy on stock A and 80% of your moncy on B shown above (Ex,6)