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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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