Assume you have two assets A and B. You know the expected return and standarddeviation of returns for each asset. This information is shown in the table below.You plan to put 50% of your wealth into each assets. What would the expectedreturn be for the portfolio?AssetAB0.030.270.1350.15returns12%15%standarddeviations20%40%

Expected return on a portfolio is the rate of return that is required to generate from the…

Answered: You plan to put 50% of your wealth into…

You plan to put 50% of your wealth into each assets. What would the expected return be for the portfolio? Asset A B 0.03 0.27 0.135 0.15 returns 12% 15% standard deviations 20% 40%

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

Problem 1PS

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Question

Assume you have two assets A and B. You know the expected return and standard
deviation of returns for each asset. This information is shown in the table below.
You plan to put 50% of your wealth into each assets. What would the expected
return be for the portfolio?
Asset
A
B
0.03
0.27
0.135
0.15
returns
12%
15%
standard
deviations
20%
40%

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Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below. A B C Probabilities return 0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?

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