Task: Consider the information on the spreadsheet illustrated below.
|
|
Rate of Return, if State Occurs |
|
Probability of |
|
|
|
| State of Economy |
State of Economy |
Stock A |
Stock B |
Stock C |
| Boom |
0.3 |
0.3 |
0.45 |
0.33 |
| Good |
0.4 |
0.12 |
0.1 |
0.15 |
| Poor |
0.2 |
0.01 |
-0.15 |
-0.05 |
| Bust |
0.1 |
-0.2 |
-0.3 |
-0.09 |
1) Your portfolio is invested 35% each in A and C, and 30% in B. What is the expected return of the portfolio?
2) What is the variance of this portfolio? The standard deviation?