Explore BrainMass

# Business portfolio theory expected return

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

I am looking for some formulas to calculate with this chart , ones to suit these questions please make them easy to understand and a clear explanation of the formula, so I can do the math myself, especially C and D. maybe make up your own examples so I watch how it's done and learn from an example

(Portfolio returns and risk) There are four securities and five possible economic scenarios. The probability of occurrence and security returns are given below.
a) Calculate the expected return and standard deviation of returns for each security

b) Calculate the correlation coefficient for each pair of securities.
c) Assuming the four securities are weighted equally, calculate the expected return to the portfolio and the standard deviation of the return to the portfolio
D)Assuming 20% of the portfolio is invested in each of U.S. T-bills and government bonds and 30% is invested in each of corporate bonds and common stock, calculate the expected return to the portfolio and the standard deviation of the return to the portfolio

State of the Economy/Probability of Occurrence/U.S. T-Bills Government Bonds/Corporate Bonds/Common Stock

High growth 0.10 6.0% 8.0% 10.0% 25.0%
Moderate growth 0.25 6.0 7.5 9.0 15.5
Slow growth 0.35 6.0 7.0 8.5 11.5
Stagnation 0.15 6.0 6.0 6.0 &#8722;1.0
Recession 0.15 6.0 4.0 &#8722;2.0 &#8722;11.5
Ã‚ 1.00 Ã‚ Ã‚ Ã‚ Ã‚

#### Solution Preview

Given
State of economy Probability of Occurence US T-Bills Government Bonds Corporate Bonds Common Stock
High growth 0.10 6.00% 8.00% 10.00% 25.00%
Moderate growth 0.25 6.00% 7.50% 9.00% 15.50%
Slow growth 0.35 6.00% 7.00% 8.50% 11.50%
Stagnation 0.15 6.00% 6.00% 6.00% -1.00%
Recession 0.15 6.00% 4.00% -2.00% -11.50%

a) Calculate the expected return and standard deviation of returns for each securityÂ
1. Compute the expected return of each security by multiplying the ...

#### Solution Summary

The business portfolio theory expected return is examined.

\$2.49