Question

Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .55 .15 .22 .42 Bust .45 .14 .04 −.05 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % b. What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) Variance

Answer 1

Answer:

Explanation:

The variance is 0.02081475

State Return

Boom =(24%*0.15+24%*0.22+52%*0.42)=0.3072

Bust =(24%*0.14+24%*0.04-52%*0.05)=0.0172

Variance=0.55*(0.3072-(0.55*0.3072+0.45*0.0172))^2+0.45*(0.0172-(0.55*0.3072+0.45*0.0172))^2=0.02081475