Portfolio risk and return
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The following probability distributions of returns for three stocks have been estimated:
State of the Economy: Probability: Returns if State Occurs:
Stock A Stock B Stock C
Boom 40% 14% 8% -6%
Normal 20% 10% 6% 4%
Recession 40% -4% 5% 10%
What is the expected return, the variance, and the standard deviation of a portfolio which is invested 50% in stock A, 10% in stock B, and 40% in stock C?
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Solution Summary
The solution calculates the expected return, the variance, and the standard deviation of a portfolio of stocks.
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