Question
While working on her term project in her FIN 301 class, Burcu identified three stocks that she could add to her portfolio: THY, ARZUM and
While working on her term project in her FIN 301 class, Burcu identified three stocks that she could add to her portfolio: THY, ARZUM and FENER. Burcu currently has 100,000 TL in her bank account. Being an avid macroeconomic researcher, she knew that the Turkish economy is going to be identified with either an economic expansion or a recession in the upcoming year. She gathered and organized information as shown in the following table. For instance, if there is an expansion, THY's return is expected to be 0.09, and if there is a recession, it is expected to be 0.20. Burcu's friend from her study group recommended her to consider ISCTR and UCAK as other investment options, so she added them to the table too. |
Rate of Return | ||||||||||||||
Probability of event | THY | ARZUM | FENER | ISCTR | UCAK | |||||||||
Expansion | .62 | .09 | .17 | .35 | 0.15 | 0.05 | ||||||||
Recession | .38 | .20 | .10 | .06 | -0.05 | -0.3 | ||||||||
a. | Burcu wishes to create an equally weighted portfolio of THY, ARZUM and FENER stocks. What is the expected return on her portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | Suppose that Burcu's mother tells her to invest 16 percent of her portfolio in THY, 16 percent in ARZUM and 68 percent in FENER. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) |
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