Question

Use the following information to answer the questions.

State of Economy	Probability of State	Return on Asset d in State	Return on Asset e in State	Return on Asset f in State
Boom	0.38	0.06	0.34	0.16
Normal	0.52	0.06	0.15	0.12
Recession	0.10	0.06	-0.21	-0.09

a. What is the expected return of each asset?

b. What is the variance of each asset?

c. what is the Standard deviation of each asset?

Answer 1

Asset d
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Boom	0.38	6	2.28	0	0
Normal	0.52	6	3.12	0	0
Recession	0.1	6	0.6	0	0
	a. Expected return %=	sum of weighted return =	0.0600	Sum=b. Variance Asset d=	0.0000
			c. Standard deviation of Asset d%	=(Variance)^(1/2)	0.0000
Asset e
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Boom	0.38	34	12.92	15.38	0.008988687
Normal	0.52	15	7.8	-3.62	0.000681429
Recession	0.1	-21	-2.1	-39.62	0.015697444
	a. Expected return %=	sum of weighted return =	0.1862	Sum=b. Variance Asset e=	0.0254
			c. Standard deviation of Asset e%	=(Variance)^(1/2)	0.1593
Asset f
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(C)^2* probability
Boom	0.38	16	6.08	4.58	0.000797103
Normal	0.52	12	6.24	0.58	1.74928E-05
Recession	0.1	-9	-0.9	-20.42	0.004169764
	a. Expected return %=	sum of weighted return =	0.1142	Sum=b. Variance Asset f=	0.0050
			c. Standard deviation of Asset f%	=(Variance)^(1/2)	0.0706