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Expected return of a portfolio; variance and standard deviation

See attached spreadsheet.

Problem 1

a. Your portfolio is invested 28 percent each in A and C, and 44 percent in B. The expected return of the portfolio is_______% (Input answer as a percent rounded to 2 decimal places).

b. The variance of this portfolio is________ (Round answer to 6 decimal places) and standard deviation is__________% (Input answer as a percent rounded to 2 decimal places).

Problem 2

a. Your portfolio is invested 16 percent each in A and C, and 68 percent in B. The expected return of the portfolio is________% (Input answer as a percent rounded to 2 decimal places).

b. The variance of this portfolio is________ (Round answer to 6 decimal places) and standard deviation is ________% (Input answer as a percent rounded to 2 decimal places).

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Solution Preview

See attached file.

Problem 1
a. In order to find the expected return of the portfolio, we must first calculate the return of the portfolio in each of the possible states of the economy. The return of a portfolio is:

Ret of portfolio = wa*Ra + wb*Rb + wc*Rc where wa, wb, wc,... are the weights of each of the components of the portfolio (in this case: wa = 0.28, wb = 0.44, wc = 0.28) and Ra, Rb, Rc are the returns of each component. So, for example, if the state is "Boom", the return would ...

Solution Summary

The solution explains both problems in concise narrative as well as clear calculations.

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