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