Question: Refer to table 10.2 a. Construct an equal-weighted (50/50) portfolio of Investments B and C. What is the expected rate of return and standard deviation

Refer to table 10.2

a. Construct an equal-weighted (50/50) portfolio of Investments B and C. What is the expected rate of return and standard deviation of the portfolio. Explain your results.

b. Construct an equal an equal-weighted (50/50) portfolio of Investments B and D. What is the expected rate of return and standard deviation of the portfolio. Explain your results.

Rate of return if state occurs
Economic state Probability of occurrence A B C D AB AC AD
Very poor 0.1 -0.1 0.3 -0.25 0.15 0.1 -0.175 0.025
Poor 0.20 0 20 -5 10 10 -2.5 5.0
Average 0.40 10 10 15 0 10 12.5 5.0
Good 0.20 20 0 35 25 10 27.5 22.5
Very good 0.10 30 -10 55 35 10 42.5 32.5
1.00
Expected rate of return 10.0% 10.0% 15.0% 12.0% 10.0% 12.5% 11.0%
Standard deviation 11.0% 11.0% 21.9% 12.1% 0.0% 16.4% 10.1%

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