Consider the following information on returns and probabilities: ▪ Invest 50% of your money in Asset A State Probability A B Portfolio Boom .4 30% -5% 12.5% Bust .6 -10% 25% 7.5% • What are the expected return and standard deviation for each asset? • What are the expected return and standard deviation for the portfolio?
Consider the following information on returns and probabilities: ▪ Invest 50% of your money in Asset A State Probability A B Portfolio Boom .4 30% -5% 12.5% Bust .6 -10% 25% 7.5% • What are the expected return and standard deviation for each asset? • What are the expected return and standard deviation for the portfolio?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 18P
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Question
EXAMPLE: PORTFOLIO VARIANCE
• Consider the following information on returns
and probabilities:
▪ Invest 50% of your money in Asset A
State Probability A B Portfolio
Boom .4 30% -5% 12.5%
Bust .6 -10% 25% 7.5%
• What are the expected return and standard
deviation for each asset?
• What are the expected return and standard
deviation for the portfolio?
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