LUNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 5 - Financial Risk and Required Return PROBLEM 3 Refer to Table 5.2 in UHFM. a. Construct an equal weighted (50/50) portfolio of Investments B and C. What is the realized rate of return and standard deviation of the portfolio? Explain your results. b. Construct an equal-weighted (50/50) portfolio of Investments C and D. What is the realized rate of return and standard deviation of the portfolio? Explain your results. ANSWER Economic State Probability of Occurrence 0.10 0.20 0.40 0.20 0.10 1.00 Very poor Poor Average Good Very good EXHIBIT 5.2 Estimated Returns for Four Individual Investments and Three Portfolios Rate of Return if Economic State Occurs B D AB AC AD -10% 30% -25% 15% 10% -17.5% 2.5% 0 20 -5 10 10 -2.5 5.0 10 10 15 o 10 12.5 5.0 20 0 35 25 10 27.5 22.5 30 -10 55 35 10 42.5 32.5 Expected rate of return Standard deviation 10.0% 10.0% 15.0% 12.0% 10.0% 12.5% 11.0% 11.0% 11.0% 21.9% 12.1% 0.0% 16.4% 10.1%