Question

expected return and standard deviation.

state of E,            boom growth stagnant   recession
probability of S,     0.29.      0.36.      0.22.         0.13
return on AssetJ 0.055.   0.055.    0.055.       0.055
return on assetK. 0.190. 0.100.    0.040.      -0.080
return on assetL. 0.280. 0.190.    0.050.       -0.180

what is the expected return of each asset?

what is the variance and the standard deviation of each asset?

what is the expected return of a portfolio with 9% in asset j. 48% in asset K, and 43% in asset L?

what is the expected return of asset J?

Answer 1

Asset J
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Boom	0.29	5.5	1.595	0	0
Growth	0.36	5.5	1.98	0	0
Stagnant	0.22	5.5	1.21	0	0
Recession	0.13	5.5	0.715	0	0
	Expected return %=	sum of weighted return =	5.5	Sum=Variance Asset J=	0
			Standard deviation of Asset J%	=(Variance)^(1/2)	0
Asset K
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Boom	0.29	19	5.51	10.05	0.002929073
Growth	0.36	10	3.6	1.05	3.969E-05
Stagnant	0.22	4	0.88	-4.95	0.000539055
Recession	0.13	-8	-1.04	-16.95	0.003734933
	Expected return %=	sum of weighted return =	8.95	Sum=Variance Asset K=	0.00724
			Standard deviation of Asset K%	=(Variance)^(1/2)	8.51
Asset L
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(C)^2* probability
Boom	0.29	28	8.12	14.28	0.005913634
Growth	0.36	19	6.84	5.28	0.001003622
Stagnant	0.22	5	1.1	-8.72	0.001672845
Recession	0.13	-18	-2.34	-31.72	0.013080059
	Expected return %=	sum of weighted return =	13.72	Sum=Variance Asset L=	0.02167
			Standard deviation of Asset L%	=(Variance)^(1/2)	14.72

Expected return%=	Wt Asset J*Return Asset J+Wt Asset K*Return Asset K+Wt Asset L*Return Asset L
Expected return%=	0.09*5.5+0.48*8.95+0.43*13.72
Expected return%=	10.69