You are provided with the following sample observations relating to historical rate of returns and their corresponding probabilities for individual assets, Brad and Ford: Brad Ford Obs E(RB) Prob 1 -0.03 0.01 2 0.07 0.09 3 0.10 0.10 4 0.11 0.20 5 0.02 0.05 6 0.15 0.25 7 0.08 0.05 8 0.09 0.10 9 0.12 0.10 10 0.05 0.05 Obs E(RF) Prob 1 -0.01 0.01 2 0.10 0.09 3 0.15 0.10 4 0.20 0.20 5 0.08 0.05 6 0.25 0.25 7 0.13 0.05 8 0.09 0.10 9 0.11 0.10 10 0.06 0.05 Required: Based on the following information (Note: You can use Microsoft Excel functions to expedite your calculations. Please show answers up to two digits after decimal point): a)  Calculate the expected rate of return for each individual asset. b)  Calculate the standard deviation of returns for each individual asset.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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You are provided with the following sample observations relating to historical rate of returns and their corresponding probabilities for individual assets, Brad and Ford:

Brad Ford

Obs

E(RB)

Prob

1

-0.03

0.01

2

0.07

0.09

3

0.10

0.10

4

0.11

0.20

5

0.02

0.05

6

0.15

0.25

7

0.08

0.05

8

0.09

0.10

9

0.12

0.10

10

0.05

0.05

Obs

E(RF)

Prob

1

-0.01

0.01

2

0.10

0.09

3

0.15

0.10

4

0.20

0.20

5

0.08

0.05

6

0.25

0.25

7

0.13

0.05

8

0.09

0.10

9

0.11

0.10

10

0.06

0.05

Required:

Based on the following information (Note: You can use Microsoft Excel functions to expedite your calculations. Please show answers up to two digits after decimal point):

  1. a)  Calculate the expected rate of return for each individual asset.

  2. b)  Calculate the standard deviation of returns for each individual asset.

 

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