Answer:
A.) The "Expected Return" of the Portfolio is 11.26%
B.) The "Variance" of the Portfolio is 6.749238
C.) The "Standard Deviation" of the Returns on this Stock is 2.5979%
Explanation:
A.) Expected return on portfolio = 0.43x9.10 + 0.16x16.70 + 0.41x11.40
= 11.26%
Therefore, The "Expected Return" of the Portfolio is 11.26%
B.)
"Variance" of the Portfolio = probability*(deviation)^2
Stock A:
probability = 0.43
(deviation)^2 = (9.1 - (0.43*9.1 + 0.16*16.7 + 0.41*11.4))^2
= (9.1 - (3.913 + 2.672 + 4.674))^2
= (9.1 - 11.259)^2
= (-2.159)^2
= 4.6613
Stock B:
probability = 0.16
(deviation)^2 = (9.1 - (0.43*9.1 + 0.16*16.7 + 0.41*11.4))^2
= (16.7 - (3.913 + 2.672 + 4.674))^2
= (16.7 - 11.259)^2
= (5.441)^2
= 29.6045
Stock C:
probability = 0.41
(deviation)^2 = (11.4 - (0.43*9.1 + 0.16*16.7 + 0.41*11.4))^2
= (11.4 - (3.913 + 2.672 + 4.674))^2
= (11.4 - 11.259)^2
= (0.141)^2
= 0.0199
"Variance" of the Portfolio = 0.43x4.6613 + 0.16x29.6045 + 0.41x0.0199
= 2.004359 + 4.73672 + 0.008159
= 6.749238
Therefore, The "Variance" of the Portfolio is 6.749238
C.) "Standard Deviation" = square root of variance
Stock A = 1.4158
Stock B = 2.1764
Stock C = 0.0906
"Standard Deviation" of the Returns on this Stock = 1.4158 + 2.1764 + 0.0906
= 2.5979%
Therefore, The "Standard Deviation" of the Returns on this Stock is 2.5979%
