What is the standard deviation of the returns on a portfolio that is invested in stocks...

What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, and C? 20 percent of the portfolio is invested in stock A and 45 percent is invested in stock C.

State of Economy

Boom Normal Bust

Probability of Returns if State Occurs

State of Economy Stock A Stock B Stock C 20% 9% 3% 11% 55%4%5%8% 25% -2% 10% -13%

Expert Solution

Portion invested in B=	100%-(20%+45%)
Portion invested in B=	35.00%


State of economy	Probability	A	B	C
Boom	20.00%	9.00%	3.00%	11.00%
Normal	55.00%	4.00%	5.00%	8.00%
Bust	25.00%	-2.00%	10.00%	-13.00%



Computation of expected return (A-20%, B-35%, C-45%)
		20%	35%	45%		Average return= Probability * return	Deviation= Return less average return	Deviation^2	Deviation^2*Probability
State of economy	Probability	A	B	C	Portfolio	Portfolio	Portfolio	Portfolio	Stock A
		Return*weight
Boom	20.00%	1.800%	1.05%	4.95%	7.800%	1.56%	3.55%	0.126%	0.0251%
Normal	55.00%	0.800%	1.75%	3.60%	6.150%	3.38%	1.90%	0.036%	0.0198%
Bust	25.00%	-0.400%	3.50%	-5.85%	-2.750%	-0.69%	-7.01%	0.491%	0.1227%
					Total	4.26%			0.1676%
Expected return-Portfolio	4.26%

Variance-Portfolio	0.17%

Standard deviation-Portfolio	4.1%	Variance ^0.5

jeff jeffy answered 2 years ago

1. What is the expected standard deviation of the returns of a portfolio that is invested...

1. What is the expected standard deviation of the returns of a portfolio that is invested 25 percent in Stock A, 40 percent in Stock B, and the remainder invested in Stock C? (Hint: create a column showing the distribution of returns for the portfolio. Then, find the portfolio's expected return and variance as normally done for a single asset.) State of Economy Probability Return of A Return of B Return of C Boom 0.20 29% 15% 6% Normal 0.50...

What is the standard deviation of the returns on a $40,000 portfolio which consists of stocks...

What is the standard deviation of the returns on a $40,000 portfolio which consists of stocks C and D? Stock C is valued at $22,000. State of Economy Probability of State of Economy Returns if State Occurs Stock C Stock D Boom 20% 15% 4% Normal 70% 9% 6% Recession 10% -2% 5%

What is the standard deviation and mean returns for an equal weighted portfolio that consists stocks...

What is the standard deviation and mean returns for an equal weighted portfolio that consists stocks X,Y,Z(equally weighted). Use the data given below. Stocks Mean Return Variance of Return X 2 2.25 Y 4 36 Z 6 4 Correlations X and Y X and Z Z and Y 0.5 0.2 0.9 2. A bond has a face value of $1000 with a time to maturity ten years from now. The yield to maturity of the bond now is 10%. What is...

What is the (population) standard deviation of portfolio returns?

Returns on stocks X and Y are listed below: Period 1 2 3 4 5 6 7 Stock X 6% 5% -2% 10% 3% 8% -4% Stock Y 11% 7% 10% -2% 3% 5% -1% Consider a portfolio of 70% stock X and 30% stock Y. What is the (population) standard deviation of portfolio returns? Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123). Note that the correct answer will be evaluated based on...

Problem 11-28 Portfolio Standard Deviation Suppose the expected returns and standard deviations of Stocks A and...

Problem 11-28 Portfolio Standard Deviation Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .091, E(RB) = .151, σA = .361, and σB = .621. a-1. Calculate the expected return of a portfolio that is composed of 36 percent A and 64 percent B when the correlation between the returns on A and B is .51. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) ...

Given the following information, what is the standard deviation of the returns on a portfolio that...

Given the following information, what is the standard deviation of the returns on a portfolio that is invested 40 percent in stock A, 35 percent in stock B, and the remainder in stock C? State of Economy Probability of State of Economy Stock A Stock B Stock C Normal 0.65 14.30% 16.70% 18.20% Recession 0.35 -9.80% 5.40% -26.90% A 12.72% B 14.07% C 1.41% D 7.41% E 11.86%

Describe what happens to the expected value and standard deviation of the portfolio returns when the...

Describe what happens to the expected value and standard deviation of the portfolio returns when the coeffi cient of correlation decreases.

What is the standard deviation of the returns?

You are analyzing the returns of a mutual fund portfolio for the past 5 years. Year Return 2014 -30% 2015 -25% 2016 40% 2017 -10% 2018 15% What is the standard deviation of the returns?

With respect to performance measures, the use of the standard deviation of portfolio returns is a...

With respect to performance measures, the use of the standard deviation of portfolio returns is a distinguishing feature of the: A. Sharpe ratio B. Treynor ratio C. beta measure D. Jensen's alpha

The expected return and standard deviation of a portfolio that is 70 percent invested in 3...

The expected return and standard deviation of a portfolio that is 70 percent invested in 3 Doors, Inc., and 30 percent invested in Down Co. are the following: 3 Doors, Inc. Down Co. Expected return, E(R) 12 % 10 % Standard deviation, σ 45 34 What is the standard deviation if the correlation is +1? 0? −1?

Question