Use the following table of states of the economy and stock returns to answer the review problems:
|
Security Returns |
|||
|
State of |
Probability of State |
Roten |
Bradley |
|
Economy |
of Economy |
||
|
Bust |
0.4 |
10% |
30% |
|
Boom |
0.6 |
40 |
10 |
|
1 |
|||
1. Expected Returns Calculate the expected returns for Roten and Bradley.
2. Standard Deviations Calculate the standard deviations for Roten and Bradley.
3. Portfolio Expected Returns Calculate the expected return on a portfolio of 50 percent Roten and 50 percent Bradley.
4. Portfolio Volatility Calculate the volatility of a portfolio of 50 percent Roten and 50 percent Bradley.