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Solve and show your work for finding the standard deviation of the portfolio using two methods (i.e., Method 1: ex ante using states of nature;
Solve and show your work for finding the standard deviation of the portfolio using two methods (i.e., Method 1: ex ante using states of nature; and Method 2: matrix multiplication).
State of Nature | Returns per State of Nature for Each Security | |||||||
RF | Market | w | x | y | z | Portfolio | ||
Prob; Weights | 16.67% | 16.67% | 16.67% | 16.67% | 16.67% | 16.67% | 100.00% | |
Good | 20% | 4.00% | 14.00% | -1.00% | 18.00% | 10.00% | 6.00% | |
Average | 50% | 4.00% | 8.00% | 6.00% | 12.00% | 6.20% | 4.50% | |
Poor | 30% | 4.00% | 2.00% | 10.00% | -3.40% | 3.30% | 3.50% | |
Mean | ||||||||
Variance | ||||||||
Std Dev | ||||||||
beta | ||||||||
Required Return (CML) | ||||||||
CML efficient (Y/N) | ||||||||
Required Return (SML) | ||||||||
SML efficient (Y/N) | ||||||||
Mean Var Efficient Set |
Covariance | RF | Market | w | x | y | z | Portfolio |
RF | |||||||
Market | |||||||
w | |||||||
x | |||||||
y | |||||||
z | |||||||
Portfolio |
Correlation | RF | Market | w | x | y | z | Portfolio |
RF | |||||||
Market | |||||||
w | |||||||
x | |||||||
y | |||||||
z | |||||||
Portfolio |
Matrix Multiplication for Portfolio Variance: | ||||||||||||
Weights' (1x6) | Variance/Covariance Matrix (6X6) | Weights (6x1) | ||||||||||
Weights*Variance/Covariance matrix (1x6) | Weights (6x1) | |||||||||||
Variance of Portfolio (1x1) | ||||||||||||
Standard Deviation of Portfolio | ||||||||||||
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