# Expected return and standard deviation

Problem 1 (Chapter 13) Please use the following information to answer the following questions.

State Probability Return on A Return on B

Boom .65 0.30 0.05

Bust .35 0.10 0.20

What is the expected return for security A? __________________

What is the expected return for security B? __________________

What is the expected return for a portfolio that is 70% invested in A and 30% invested in B? __________

What is the standard deviation of security A? __________________

What is the standard deviation of security B? __________________

What is the standard deviation of a portfolio with one-quarter of the funds in A and the remainder of the funds in B? __________________

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#### Solution Preview

State Probability Return on A Return on B

Boom .65 0.30 0.05

Bust .35 0.10 0.20

What is the expected return for security A? __________________

Expected return = Sum (Probability X return)

= 0.65X0.3 + 0.35X0.1 = 23%

What is the expected return for security B? __________________

Expected return = ...

#### Solution Summary

The solution explains how to calculate the expected return and standard deviation for individual securities and for a portfolio