Question

In: Finance

1. Consider the following information on three stocks in four possible future states of the economy:                         &nbsp

1. Consider the following information on three stocks in four possible future states of the economy:                                                                                                (6 marks total)

Rate of return if state occurs

State of economy

Probability of state of economy

Stock A

Stock B

Stock C

Boom

0.4

0.35

0.45

0.38

Good

0.3

0.15

0.20

0.12

Poor

0.2

0.05

-0.10

-0.05

Bust

0.1

0.00

-0.30

-0.10

a.   Your portfolio is invested 50% in A, 20% in B, and 30% in C. What is the expected return of your portfolio?                                                            

b.   What is the variance of this portfolio?                                                          

c.   What is the standard deviation of this portfolio?                               (1 mark)

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