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Business Finance CONTEMP. FINANCIAL MGT.-W/MINDTAP V3

a) i) To determine: The expected return from the portfolio. Calculation of expected return from portfolio: E R = Probability × expected return = 0.40 × 0.10 + 0.60 × 0.07 = 8.2 % Therefore, expected return from portfolio is 8.20% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.40 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 0.5 × 0.08 × 0.04 0.50 = 4.87 % Therefore, standard deviation from portfolio is 4.87% b) i) To determine: The expected return from the portfolio. Calculation of expected return from portfolio: E R = Probability × expected return = 0.7 × 0.10 + 0.30 × 0.07 = 9.1 % Therefore, expected return from portfolio is 9.1% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.7 2 × 0.08 2 + 0.30 2 × 0.04 2 + 2 × 0.7 × 0.3 × 0.5 × 0.08 × 0.04 0.50 = 6.29 % Therefore, standard deviation from portfolio is 4.87% c) i) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 1 × 0.08 × 0.04 0.50 = 5.60 % Therefore, standard deviation from portfolio is 5.60% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 0 × 0.08 × 0.04 0.50 = 4.00 % Therefore, standard deviation from portfolio is 4.00% iii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × − 0.7 × 0.08 × 0.04 0.50 = 2.29 % Therefore, standard deviation from portfolio is 2.29%

a) i) To determine: The expected return from the portfolio. Calculation of expected return from portfolio: E R = Probability × expected return = 0.40 × 0.10 + 0.60 × 0.07 = 8.2 % Therefore, expected return from portfolio is 8.20% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.40 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 0.5 × 0.08 × 0.04 0.50 = 4.87 % Therefore, standard deviation from portfolio is 4.87% b) i) To determine: The expected return from the portfolio. Calculation of expected return from portfolio: E R = Probability × expected return = 0.7 × 0.10 + 0.30 × 0.07 = 9.1 % Therefore, expected return from portfolio is 9.1% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.7 2 × 0.08 2 + 0.30 2 × 0.04 2 + 2 × 0.7 × 0.3 × 0.5 × 0.08 × 0.04 0.50 = 6.29 % Therefore, standard deviation from portfolio is 4.87% c) i) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 1 × 0.08 × 0.04 0.50 = 5.60 % Therefore, standard deviation from portfolio is 5.60% ii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × 0 × 0.08 × 0.04 0.50 = 4.00 % Therefore, standard deviation from portfolio is 4.00% iii) To determine: The standard deviation of returns from the portfolio. Calculation of standard deviation from the portfolio: σ p = w 1 2 × σ 1 2 + σ 1 2 × σ 2 2 + 2 × w 1 × w 2 × p 1 × σ 1 × σ 2 = 0.4 2 × 0.08 2 + 0.60 2 × 0.04 2 + 2 × 0.4 × 0.6 × − 0.7 × 0.08 × 0.04 0.50 = 2.29 % Therefore, standard deviation from portfolio is 2.29%

Solution Summary: The author explains how to determine the expected return from the portfolio.

CONTEMP. FINANCIAL MGT.-W/MINDTAP V3

CONTEMP. FINANCIAL MGT.-W/MINDTAP V3

14th Edition

ISBN: 9780357292839

Author: MOYER

Publisher: CENGAGE L

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CONTEMP. FINANCIAL MGT.-W/MINDTAP V3

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