In: Finance
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)