Concept explainers
Returns and Standard Deviations Consider the following information:
- a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio?
- b. What is the variance of this portfolio? The standard deviation?
a.
To determine: The Expected Return on Portfolio.
Introduction: Expected Return is a process of estimating the profits and losses an investor earns through the expected rate of returns. Standard deviation is apportioned of distribution of a collection of figures from its mean.
Answer to Problem 9QP
Solution: The Expected Return on Portfolio is 11.17%
Explanation of Solution
Determine the Portfolio Return for each Stock
Therefore the Portfolio Return for Boom is 35.10%, Good is 11.20%, Poor is -4.60% and Bust is -14.20%.
Determine the Expected Return on Portfolio
Therefore the Expected Return on Portfolio is 11.17%.
b.
To determine: The Variance and Standard Deviation on Portfolio.
Answer to Problem 9QP
Solution: The Variance on Portfolio is 0.025 and Standard Deviation on Portfolio is 15.81%.
Explanation of Solution
Determine the Variance of Portfolio
Therefore the Variance on Portfolio is 0.025.
Determine the Standard Deviation of Portfolio
Therefore the Standard Deviation on Portfolio is 15.81%.
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Chapter 11 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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