In: Finance
Expected return and standard deviation.
Use the following information to answer the questions.
State of Economy |
Probability of State |
Return on Asset J in State |
Return on Asset K in State |
Return on Asset L in State |
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Boom |
0.24 |
0.055 |
0.210 |
0.290 |
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Growth |
0.38 |
0.055 |
0.130 |
0.190 |
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Stagnant |
0.22 |
0.055 |
0.030 |
0.070 |
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Recession |
0.16 |
0.055 |
−0.090 |
−0.220 |
a. What is the expected return of each asset?
b. What is the variance and the standard deviation of each asset?
c. What is the expected return of a portfolio with 10% in asset J, 45% in asset K, and 45% in asset L?
d. What is the portfolio's variance and standard deviation using the same asset weights from part C