# Quiz 4 w answers - +4 Given the probabilities for each...

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Quiz 4 BUSI 105: Spring 2008 Name ___________________________________ Consider a portfolio made up of 60% stocks and 40% bonds . What is the portfolio return for each of the following scenarios? Recession ( - 5%  ×  0.6) + (14%  ×  0.4) = 2.6% Normal economy (15%  ×  0.6) +(8%  ×  0.4) = 12.2% Boom (25%  ×  0.6) + (4%  ×  0.4) = 16.6% Rate of Return Scenario Scenario Probability Stocks Bonds portfolio return Recession .20 -5% +14% Normal economy .60 +15 +8 Boom .20 +25
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Unformatted text preview: +4 Given the probabilities for each scenario, what is the expected return for the portfolio? Expected return = (0.2 2.6%) + (0.6 12.2%) + (0.2 16.6%) = 11.16% What is the standard deviation of the portfolio? Variance = [0.2 (2.6 11.16) 2 ] + [0.6 (12.2 11.16) 2 ] + [0.2 (16.6 11.16) 2 ] = 21.22 Standard deviation = 22 . 21 = 4.61%...
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## This note was uploaded on 04/04/2012 for the course BUSINESS 105 taught by Professor Luann during the Spring '08 term at uot.

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