Expected Return and Standard Deviation of Return of Stock Portfolio

The probability that the economy will contract is 0.2. The probability of moderate growth is 0.6, and the probability of a rapid expansion is 0.2. If the economy contracts, you can expect a return on your portfolio of 5 percent. With moderate growth, your return will be 8 percent. If there is a rapid expansion, your portfolio will return 15 percent.
1. What is your expected return?
2. What is the standard deviation of the return?

Solution Preview

Expected return = Sum of (Probability of event i * return when ...

Solution Summary

The solution calculates the expected return and standard error of the stock portfolio

1. Why are bond market indices more difficult to construct and maintain than stock market indices?
2. An investor wishes to construct a portfolio consisting of a 70% allocation to a stock index and a 30% allocation to a risk free asset. The return on the risk-free asset is 4.5% and the expectedreturn on the stock index is 1

You have estimated the following probability distributions of expected future returns for Stock X and Y:
Stock X Probability ReturnStock Y Probability Return
0.1 -10% 0.2 2%
0.2 10% 0.2 7

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expectedreturn of 21% and a standard deviation of return of 39%. Stock B has an expectedreturn of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The risk-free rate of return i

Suppose the expectedreturns and standard deviations of stocks A and B are E(R^A)=0.15, E(r^B)=0.25, s^a=0.1, and s^b=0.2, respectively.
a.Calculate the expested returnand standard deviationportfolio that is composed of 40 percent A and 60 percent B when the correlation between returns on A and B is 0.5.
b. Calculate the

5.13 in Ch. 5
Expectedreturn
Year Stock L Stock M
2010 14% 20%
2011 14 18
2012 16 16
2013 17 14
2014 17 12
2015 19 10
P5รข?"13 Portfolioreturnand standard deviation Jamie Wong is considering building an investment portfolio containing two stocks, L and

Reconsider the Best Candy and Sugar Beet stock market hedging. Assume that the probability distribution of the rate of return on Best Candy stock is unchanged but for Sugar Beet stock, it becomes the following:
See attached document for data
a) If Humanex's portfolio is half Best Candy stockand half Sugar Beet, what ar

1. You are given the following information on a stock fund.
a. Please compute the expectedreturnand standard deviation for the stock fund.
Scenario Probability Rate of Return/Stock Fund
Recession 25.0% -7%
Normal 50% 12%

Please see attached.
1-Portfolioexpectedreturn you have 10,000 to invest ion a stock portifolio. Your choices are stock x with an expectedreturn of 14 percent andstock y with an expectedreturn of 9 percent .If your goal is creat a portfolio with an expectedreturn of 12.2 percent, how much money will you invest in stock

Consider the following information about three stocks:
State of Economy
Probability of State of Economy Rate of Return if State Occurs
Stock A Stock B Stock C
Boom .4 .20 .35 .60 .4 .20 .35 .60
Normal .4 .15 .12 .05 .4 .15 .12 .05
Bust .2 .01 -.25 -.50 .2 .01 -.25 -.50
a. If your portfolio is invested 40% each in A a