Question

In: Finance

Use the following table to answer questions 1 - 6: State of Economy Probability of State...

Use the following table to answer questions 1 - 6:

State of Economy

Probability of State of Economy

Asset A Rate of Return

Asset B Rate of Return

Boom

0.3

0.13

0.08

Normal

0.5

0.06

0.05

Recession

0.2

-0.05

-0.01

  1. What is the expected return for asset A?

  1. What is the expected return for asset B?

  1. What is the standard deviation for asset A?

  1. What is the standard deviation for asset B?

  1. What is the expected return of a portfolio that has 70% in Asset A and 30% in Asset B?

  1. The standard deviation of the 70% A and 30% B portfolio most likely should:

A)

Equal 70% X A's standard deviation plus 30% x B's standard deviation.

B)

Be greater than 70% X A's standard deviation plus 30% x B's standard deviation.

C)

Be less than 70% X A's standard deviation plus 30% x B's standard deviation.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -


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