Consider the following information:
|Rate of Return if State Occurs|
|State of Economy||Probability of State of Economy||Stock A||Stock B||Stock C|
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-1. What is the variance of this portfolio?
b-2. What is the standard deviation?
Portfolio Expected Return, Variance, and Standard Deviation
Portfolio expected return looks at the anticipated returns for a portfolio of stocks, given different possible states of the economy and their relative probabilities. After calculating the portfolio expected return, we can compute the portfolio's variance and standard deviation to determine the risk level of those expected returns.
Answer and Explanation: 1
Step 1: Calculate the expected return in each state of the economy.
Multiply the return of each stock in the given state by its portfolio weight:
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fromChapter 12 / Lesson 1
A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.