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Whatareyourportfolioweightsin eachsecurity 2000ofdclk

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Unformatted text preview: 2 = .3(.25­.177)2 + .5(.2­.177)2 + .2(.01­.177)2 = .007441 σ = .0863 Another Example Another Example Consider the following information: State Boom Normal Slowdown Recession Probability .25 .50 .15 .10 ABC, Inc. .15 .08 .04 ­.03 What is the expected return? What is the variance? What is the standard deviation? Portfolios Portfolios A portfolio is a collection of assets An asset’s risk and return is important in how it affects the risk and return of the portfolio The risk­return trade­off for a portfolio is measured by the portfolio expected return and standard deviation, just as with individual assets Example: Portfolio Weights Example: Portfolio Weights Suppose you have $15,000 to invest and you have purchased securities in the following amounts. What are your portfolio weights in each security? $2000 of DCLK $3000 of KO $4000 of INTC $6000 of KEI •DCLK: 2/15 = .133 •KO: 3/15 = .2 •INTC: 4/15 = .267 •KEI: 6/15 = .4 Portfolio Expected Returns Portfolio Expected Returns The expected return of a portfolio is the weighted average of the expected returns for each asset in the portfolio m E ( RP ) = ∑ w j E ( R j ) j =1 You can also find the expected return by finding the portfoli...
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