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).

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.

3. Consider two securities with expectedreturn of 16% and 20% and standard deviation of 25% and 40%, respectively.
a. If the returns of the two assets are perfectly correlated, create a portfolio with an expectedreturn of 24%. Find the standard deviation of that portfolio.
b. Create a portfolio with a standard deviation o

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

1. What is the correlation coefficient?
2. What is the amount to put in the bond fund to achieve the minimum variance portfolio?
3. What is the expectedreturn, variance, and standard deviation on this portfolio?
4. What is the slope of a line going from Rf through this portfolio?
5. What is the utility of this portfolio?
6

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

See attached file.
#4. After examining the opportunity set, you notice that you can invest in a portfolio consisting of the bond fund and the large-cap stock fund that will have exactly the same standard deviation as the bond fund. This
portfolio will also have a greater expectedreturn. What are the portfolio weights and ex

Given the following expectedreturn vector andvariance-covariance matrix for three assets:
ER= 10.1
7.8
5.0
VC= 210 60 0
60 90 0
0 0 0
and given the fact that Pie Traynor's risky portfolio is split 50-50 between the two risky asets:
a) Which security of the thre

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%

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expectedreturn of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements best descr