Probability Return OK 03 1500 Slump 02

Probability return ok 03 1500 slump 02

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Probability Return Boom 0.1 40.00% Good 0.2 30.00% OK 0.3 15.00% Level 0.2 2.00% Slump 0.2 -12.00% Solution E(R i ) = 0.1(0.4) + (0.2) (0.3) + (0.3) (0.15) + (0.2) (0.02) + (0.2) (–0.12) = 0.125 σ 2 return = 0.1(0.4 – 0.125) 2 + (0.2) (0.3 – 0.125) 2 + (0.3) (0.15 – 0.125) 2 + (0.2) (0.02 – 0.125) 2 + (0.2) (–0.12 – 0.125) 2 = 0.02809 σ return = (0.02809) 1/2 = 0.16759 7.18 Single-asset portfolios: Using the information from Problems 7.15, 7.16, and 7.17, calculate each coefficient of variation. Solution: Coefficient of variation = σ Return / E(R i ) Problem 15: 0.16194/0.145 = 1.11684 (using the exact values rather than the printed) Problem 16: 0.08789/0.105 = 0.083707 (using the exact values rather than the printed) Problem 17: 0.16759/0.125 = 1.34069 (using the exact values rather than the printed)
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