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State of Economy Probability of State Return on Asset A in State Return on Asset B in State Return...

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Finance

State of EconomyProbability of StateReturn on Asset A in StateReturn on Asset B in StateReturn on Asset C in State
Boom0.350.040.210.3
Normal0.50.040.080.2
Recession0.150.04-0.01-0.26

a.??What is the expected return of each? asset?

b.??What is the variance of each? asset?

c.??What is the standard deviation of each? asset?

Answer & Explanation Solved by verified expert
4.4 Ratings (738 Votes)

Asset A
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (A)^2* probability
Boom 0.35 4 1.4 0 0
Normal 0.5 4 2 0 0
Recession 0.15 4 0.6 0 0
a. Expected return %= sum of weighted return = 4 Sum=b. Variance Asset A= 0
c. Standard deviation of Asset A% =(Variance)^(1/2) 0
Asset B
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (B)^2* probability
Boom 0.35 21 7.35 9.8 0.0033614
Normal 0.5 8 4 -3.2 0.000512
Recession 0.15 -1 -0.15 -12.2 0.0022326
a. Expected return %= sum of weighted return = 11.2 Sum=b. Variance Asset B= 0.00611
c. Standard deviation of Asset B% =(Variance)^(1/2) 7.81
Asset C
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (C)^2* probability
Boom 0.35 30 10.5 13.4 0.0062846
Normal 0.5 20 10 3.4 0.000578
Recession 0.15 -26 -3.9 -42.6 0.0272214
a. Expected return %= sum of weighted return = 16.6 Sum=b. Variance Asset C= 0.03408
c. Standard deviation of Asset C% =(Variance)^(1/2) 18.46

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Transcribed Image Text

State of EconomyProbability of StateReturn on Asset A in StateReturn on Asset B in StateReturn on Asset C in StateBoom0.350.040.210.3Normal0.50.040.080.2Recession0.150.04-0.01-0.26a.??What is the expected return of each? asset?b.??What is the variance of each? asset?c.??What is the standard deviation of each? asset?

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