Consider the following statistics for three stocks Now consi

Consider the following statistics for three stocks:

Now consider two portfolios of these three securities:

{ 25%, 55%, 20% }

{ 20%, 50%, 30% }

[10 points] What are the expected returns of the portfolios? (Enter your answers as decimal rounded to 4 digits, for example 0.0317 rather than 3.17%)
1:
2:

[30 points] What are the standard deviations of returns of the portfolios? (Enter your answers as decimal rounded to 4 digits, for example 0.0317 rather than 3.17%)
1:
2:

[20 points] Suppose a risk-free security does not exist. Which portfolio is better for an investor with risk aversion of 5?

[20 points] Suppose a risk-free security does exist with a rate of return of 1%. Which portfolio is better for the investor?

Solution