Problem 13-9 Returns and Variances (LO1, 2) Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Boom Bust 0.54 0.46 Stock A 0.12 0.15 Stock B 0.20 0.06 Stock C 0.38 -0.05 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return % b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.) Variance

Problem 13-9 Returns and Variances (LO1, 2) Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Boom Bust 0.54 0.46 Stock A 0.12 0.15 Stock B 0.20 0.06 Stock C 0.38 -0.05 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return % b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.) Variance

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 7P

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Problem 13-9 Returns and Variances (LO1, 2)

Consider the following information:

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Stock A	Stock B	Stock C
Boom		0.54	0.12	0.20	0.38
Bust		0.46	0.15	0.06	−0.05

a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Expected return %

b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.)

Problem 13-9 Returns and Variances (LO1, 2)

Consider the following information:

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Stock A	Stock B	Stock C
Boom		0.54	0.12	0.20	0.38
Bust		0.46	0.15	0.06	−0.05

a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Expected return %

b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.)

Problem 13-9 Returns and Variances (LO1, 2)
Consider the following information:
State of
Economy
Probability of
State of Economy
Rate of Return if State Occurs
Boom
Bust
0.54
0.46
Stock A
0.12
0.15
Stock B
0.20
0.06
Stock C
0.38
-0.05
a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations.
Round the final answer to 2 decimal places.)
Expected return
%
b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the
final answer to 6 decimal places.)
Variance

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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