Expected return and standard deviation. Use the following information to answer the questions. State of Economy Probability of State Return on Asset R in State Return on Asset S in State Return on Asset T in State Boom 0.25 0.020 0.270 0.490 Growth 0.35 0.020 0.110 0.280 Stagnant 0.22 0.020 0.140 0.020 Recession 0.18 0.020 −0.030 −0.150 a. What is the expected return of each asset? b. What are the variance and the standard deviation of each asset? c. What is the expected return of a portfolio with equal investment in all three assets? d. What is the portfolio's variance and standard deviation using the same asset weights in part (c)? Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. a. What is the expected return of asset R? (Round to four decimal places.) What is the expected return of asset S? (Round to four decimal places.) What is the expected return of asset T? (Round to four decimal places.) b. What is the variance of asset R? (Round to four decimal places.) What is the variance of asset S? (Round to four decimal places.) What is the variance of asset T? (Round to four decimal places.) What is the standard deviation of asset R? (Round to four decimal places.) What is the standard deviation of asset S? (Round to four decimal places.) What is the standard deviation of asset T? (Round to four decimal places.) c. What is the expected return of a portfolio with equal investment in all three assets? (Round to four decimal places.) d. What is the portfolio's variance using the same asset weights from part (c)? (Round to four decimal places.) What is the portfolio's standard using the same asset weights from part (c)? (Round to four decimal places.)
Expected return and standard deviation. Use the following information to answer the questions. State of Economy Probability of State Return on Asset R in State Return on Asset S in State Return on Asset T in State Boom 0.25 0.020 0.270 0.490 Growth 0.35 0.020 0.110 0.280 Stagnant 0.22 0.020 0.140 0.020 Recession 0.18 0.020 −0.030 −0.150 a. What is the expected return of each asset? b. What are the variance and the standard deviation of each asset? c. What is the expected return of a portfolio with equal investment in all three assets? d. What is the portfolio's variance and standard deviation using the same asset weights in part (c)? Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. a. What is the expected return of asset R? (Round to four decimal places.) What is the expected return of asset S? (Round to four decimal places.) What is the expected return of asset T? (Round to four decimal places.) b. What is the variance of asset R? (Round to four decimal places.) What is the variance of asset S? (Round to four decimal places.) What is the variance of asset T? (Round to four decimal places.) What is the standard deviation of asset R? (Round to four decimal places.) What is the standard deviation of asset S? (Round to four decimal places.) What is the standard deviation of asset T? (Round to four decimal places.) c. What is the expected return of a portfolio with equal investment in all three assets? (Round to four decimal places.) d. What is the portfolio's variance using the same asset weights from part (c)? (Round to four decimal places.) What is the portfolio's standard using the same asset weights from part (c)? (Round to four decimal places.)
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 14MC: This calculation determines profitability or growth potential of an investment, expressed as a...
Related questions
Question
|
Expected return and standard
deviation.
Use the following information to answer the questions.
State of
Economy
|
Probability
of State
|
Asset R in
State
|
Return on
Asset S in
State
|
Return on
Asset T in
State
|
|
||||
Boom
|
|
0.25
|
|
0.020
|
|
0.270
|
|
0.490
|
|
Growth
|
|
0.35
|
|
0.020
|
|
0.110
|
|
0.280
|
|
Stagnant
|
|
0.22
|
|
0.020
|
|
0.140
|
|
0.020
|
|
Recession
|
|
0.18
|
|
0.020
|
|
−0.030
|
|
−0.150
|
|
a. What is the expected return of each asset?
b. What are the variance and the standard deviation of each asset?
c. What is the expected return of a portfolio with equal investment in all three assets?
d. What is the portfolio's variance and standard deviation using the same asset weights in part
(c)?
Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places.
a. What is the expected return of asset R?
What is the expected return of asset S?
What is the expected return of asset T?
b. What is the variance of asset R?
What is the variance of asset S?
What is the variance of asset T?
What is the standard deviation of asset R?
What is the standard deviation of asset S?
What is the standard deviation of asset T?
c. What is the expected return of a portfolio with equal investment in all three assets?
d. What is the portfolio's variance using the same asset weights from part
(c)?
What is the portfolio's standard using the same asset weights from part
(c)?
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