Miss Maple is considering two securities, A and B, with the relevant information given below:
State of Economy Probability Return on Security A Return on Security B
Bear 0.4 3.0 % 6.5%
Bull 0.6 15% 6.5%
a. Calculate the expected return and standard deviation of each of the two securities.
b. Suppose Miss Maple invested $2,500 in Security A and $3,500 in security B. Calculate the expected return and standard deviation for her portfolio.
The solution calculates the Expected return and Standard Deviation of a portfolio of 2 securities given the probability distribution of returns on the two securities, and the proportion of the two securities in the portfolio