State of Probability
Economy of State
Stock A Stock B Stock C
Boom .30 .30 .39 .45
Good .40 .15 .12 .20
Poor .12 .08 .06 .11
Bust .18 -.03 -.07 -.11
Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round your intermediate calculations.)
(a) What is the variance of this portfolio? (Do not round your intermediate calculations.)
HINT: It is best if you first calculate the return on the portfolio in all 4 states. You will need those numbers in the next part of the problem.
(b) What is the standard deviation? (Do not round your intermediate calculations.)
NOTE: The standard deviation is the square root of the variance. It tells us on average, how far away the return will be from the expected return.
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