10. Returns and Standard Deviations [LO1] Considerthe following information:Rate of Return IfState Occurs StateEconomyof Probability of State Stock Stock StockCof EconomyBВoom.10.2735.16.40Good.60.17.08Рoor.25-.01-.03-.04Bust.05-.12-.18-.09453a. Your portfolio is invested 30 percent each in A and C, and40 percent in B. What is the expected return of the portfolio?b. What is the variance of this portfolio? The standarddeviation?

Here, Weight of Stock A is 30% Weight of Stock B is 40% Weight of Stock C is 30%

State Economy of Probability of State Stock Stock Stock of Economy A в с Вoom .10 35 .40 .27 .08 Good .60 .16 .17 Рoor .25 -.01 -.03 -.04 Bust .05 -.12 -.18 -.09 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? b. What is the variance of this portfolio? The standard deviation?

State Economy of Probability of State Stock Stock Stock of Economy A в с Вoom .10 35 .40 .27 .08 Good .60 .16 .17 Рoor .25 -.01 -.03 -.04 Bust .05 -.12 -.18 -.09 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? b. What is the variance of this portfolio? The standard deviation?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 1PROB

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

10. Returns and Standard Deviations [LO1] Consider
the following information:
Rate of Return If
State Occurs

State
Economy
of Probability of State Stock Stock Stock
C
of Economy
B
Вoom
.10
.27
35
.16
.40
Good
.60
.17
.08
Рoor
.25
-.01
-.03
-.04
Bust
.05
-.12
-.18
-.09
453
a. Your portfolio is invested 30 percent each in A and C, and
40 percent in B. What is the expected return of the portfolio?
b. What is the variance of this portfolio? The standard
deviation?

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