Using the information in the above table answer the following questions: a. What is the expected return of a portfolio with 40% in FUSTA and 60% in FANSA? b. What are the portfolio’s variance and standard deviation using the same asset weights from part (c)?

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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Using the information in the above table answer the following questions: a. What is the expected return of a portfolio with 40% in FUSTA and 60% in FANSA? b. What are the portfolio’s variance and standard deviation using the same asset weights from part (c)?
An equity analyst has projected the expected returns on the shares of two (2) publicly traded
corporations, Fusta Inc. and Fansa Ltd, under three (3) different economic conditions. The
probabilities of each economic state were determined by the Central Bank and are shown in Table
2 below.
TABLE 2
State of
Probabilit
Return on
Return on
Economy y of State
FUSTA
FANSA
Boom
.25
0.240
0.300
Stagnant .35
0.040
0.060
Recessio .40
-0.100
-0.200
n
Transcribed Image Text:An equity analyst has projected the expected returns on the shares of two (2) publicly traded corporations, Fusta Inc. and Fansa Ltd, under three (3) different economic conditions. The probabilities of each economic state were determined by the Central Bank and are shown in Table 2 below. TABLE 2 State of Probabilit Return on Return on Economy y of State FUSTA FANSA Boom .25 0.240 0.300 Stagnant .35 0.040 0.060 Recessio .40 -0.100 -0.200 n
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