Question

State of Economy	Probability of State	Return on Asset A in State	Return on Asset B in State	Return on Asset C in State
Boom	0.35	0.04	0.21	0.3
Normal	0.5	0.04	0.08	0.2
Recession	0.15	0.04	-0.01	-0.26

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 A
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Boom	0.35	4	1.4	0	0
Normal	0.5	4	2	0	0
Recession	0.15	4	0.6	0	0
	a. Expected return %=	sum of weighted return =	4	Sum=b. Variance Asset A=	0
			c. Standard deviation of Asset A%	=(Variance)^(1/2)	0
Asset B
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(B)^2* probability
Boom	0.35	21	7.35	9.8	0.0033614
Normal	0.5	8	4	-3.2	0.000512
Recession	0.15	-1	-0.15	-12.2	0.0022326
	a. Expected return %=	sum of weighted return =	11.2	Sum=b. Variance Asset B=	0.00611
			c. Standard deviation of Asset B%	=(Variance)^(1/2)	7.81
Asset C
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(C)^2* probability
Boom	0.35	30	10.5	13.4	0.0062846
Normal	0.5	20	10	3.4	0.000578
Recession	0.15	-26	-3.9	-42.6	0.0272214
	a. Expected return %=	sum of weighted return =	16.6	Sum=b. Variance Asset C=	0.03408
			c. Standard deviation of Asset C%	=(Variance)^(1/2)	18.46