hw13 - Standard deviation stock b = .1(-.2-.157)^2 +...

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Zohaib Khan 1) Weight for Stock A is (70*40)/(70*40)+(110*22) = 2800/5220 = .54 Weight For Stock B is 1-.54 = .46 2) total value = 1200+1900=3100 stock A = 1200/3100 = .39 stock B = 1900/3100 = .61 Return = .39(.11)+.61(.16) = 14.05% 3) .5(.11)+.3(.17)+.2(.14)= 13.4% 4) .122 = .14y + .09(1-y) =>.122=.14y+.09-.09y =>.032=.05y => y=.64 Investment x = .64(10000) =6400 Investment y = (1-.64)(10000) = 3600 5) expected return = .3(-.08) + .7(.28) = 17.2% 6) expected return = .2(-.05) + .5(.12) +.3(.25) = 12.5% 7) expected return of A = .1(.06) +.6(.07)+.3(.11) = .081 expected return of B = .1(-.2)+.6(.13)+.3(.33) = .157 Standard deviation stock a = .1(.06-.081)^2 + .6(.07-.081)^2 + .3(.11-.081)^2 => 0+.0001+.002=.00021^1/2 = .0455
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Unformatted text preview: Standard deviation stock b = .1(-.2-.157)^2 + .6(.13-.157)^2 + .3(.33-.157)^2 => .0127+.0004+.009 = .0257^1/2 = .1602 8) .2(.08)+.7(.15)+.1(.24) => .145 9) A) Boom=> .7*((.07+.15+.33)/3) = .1283 Bust=> .3*((.13+.03-.06)/3) = .01 .1283+.01= .1383 B) Rate =>.2(.07)+.2(.15)+.6(.33)= .242 .2(.13)+.2(.03)+.6(-.06)= -.0004 Expected retrun=>.7(.242)+.3(.0004)=.1682 Variance => .7(.242-.1682)^2+.3(-.0004-.1682)=.0038+.0085=>.0123 10) Boom= .30(.3) + .40(.45) + .30(.33) = .3690 or 36.90% Good= .30(.12) + .40(.10) + .30(.15) = .1210 or 12.10% Poor= .30(.01) + .40(.15) + .30(.05) = .0720 or 7.20% Bust= .30(.06) + .40(.30) + .30(.09) = .1650 or 16.50%...
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