Homework 7 - Fall 2008 Engineering 120 Industrial Engineering Operations Research Page 1 of 1 Homework#7 1(10 points Based on the following

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Fall 2008 Engineering 120 October 31, 2008 Page 1 of 1 Homework #7 1. ( 10 points ) Based on the following information, calculate the expected return and standard deviation for the two stocks: State of Economy Probability of State Stock A return Stock B return Recession .15 .06 -.20 Normal .60 .07 .13 Boom .25 .11 .33 2. ( 10 points ) Consider the following information: State of Economy Probability of State Stock A return Stock B return Stock C return Boom .75 .07 .15 .33 Bust .25 .13 .03 -.06 a. What is the expected return on an equally weighted portfolio of these three stocks? b. What is the variance of a portfolio invested 20% each in A and B, and 60 % in C? 3. ( 10 points ) Consider the following information: State of Economy Probability of State Stock A return Stock B return Stock C return Boom .20 .30 .45 .33 Good .40 .12 .10 .15 Poor .30 .01 -.15 -.05 Bust .10 -.06 -.30 -.09 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the
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This note was uploaded on 06/15/2009 for the course ENGIN 120 taught by Professor Ilan during the Fall '08 term at University of California, Berkeley.

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