Consider the following information:

Probability 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

Requirement 1:

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.)

Requirement 2:

(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."

Probability 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

Requirement 1:

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.)

Requirement 2:

(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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