Lisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago. Supposing that the forecast on the economic situation and returns of the portfolio will be as follows in the next year, calculate the expected return, variance and standard deviation of the portfolio. State of economy Probability Rate of returns Mild Recession 0.30 - 5% Growth 0.40 12% Strong Growth 0.30 25%
Lisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago.
Supposing that the
|
State of economy |
Probability |
|
|
Mild Recession |
0.30 |
- 5% |
|
Growth |
0.40 |
12% |
|
Strong Growth |
0.30 |
25% |
RETURN ON PORTFOLIO
he rate of return on a portfolio is the ratio of the net gain or loss which a portfolio generates.
Return on portfolio is computed :-
E(Rp) = ∑(Return * Probablity)
VARIANCE
Portfolio variance is a statistical value that assesses the degree of dispersion of the returns of a portfolio.
Variance is computed :-
= ∑P(X1 - X2)2
STABDARD DEVIATION
the standard deviation is a measure of the amount of variation or dispersion of a set of values.
standard deviation is computed :-
= √Variance
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