Chapter 13RiskReturn Question of 0 10 1500 points Consider t

Chapter 13-Risk&Return; Question (of 0) 10. 15.00 points Consider the following information Return If State Occurs State of Probabilty of Economy State of Economy Stock B 49 Stock A Slock C 15 Good Poor Bust 25 05 15 -?? -20 -09 -24 -.07 10 a. Your portolio is invested 24 percent each in A and C, and 52 percent in B. What is the return of the portfolio in each state? (Do not round intermediate calculaitons. Enter your answer as a percent rounded to 2 decimal places,e.g 32.16.) Boom Bust Portfoio Return b. What i s the expected return ot the porttolio? (Do not round intermediate calculaitons. Enter your answer as a percent rounded to 2 decirmal places,e.g 32.16.) Expected return References eBook & Resources TOSHIBA F4 FS F6 F7 F8 5 W E RT

Solution

Answer a.

Boom:

Portfolio Return = 24% * 0.39 + 52% * 0.49 + 24% * 0.29
Portfolio Return = 0.418
Portfolio Return = 41.80%

Good:

Portfolio Return = 24% * 0.15 + 52% * 0.20 + 24% * 0.08
Portfolio Return = 0.1592
Portfolio Return = 15.92%

Poor:

Portfolio Return = 24% * (-0.01) + 52% * (-0.09) + 24% * (-0.07)
Portfolio Return = -0.066
Portfolio Return = -6.60%

Bust:

Portfolio Return = 24% * (-0.20) + 52% * (-0.24) + 24% * (-0.10)
Portfolio Return = -0.1968
Portfolio Return = -19.68%

Answer b.

Expected Return = 0.15 * 41.80% + 0.55 * 15.92% + 0.25 * (-6.60%) + 0.05 * (-19.68%)
Expected Return = 12.39%