In: Finance
Consider the following probability distribution of returns estimated for Projects B, C and D. Construct an equal-weighted (50/50) portfolio of Investments B and D.
State | Probability | B | C | D |
Very poor | 0.1 | 25% | -25% | 15% |
Poor | 0.2 | 15% | -5% | 10% |
Average | 0.4 | 10% | 15% | 0% |
Good | 0.2 | 0% | 35% | 25% |
Very good | 0.1 | -10% | 55% | 35% |
The expected rate of return of the portfolio is 10.25.
What is the standard deviation?