1. Suppose your expectations regarding the stock market are as follows:State of theProbability HPREconomyBoom0.333%Normal growth0.319Recession0.4-15a. What is the expected return, variance and standard deviation?2. Assume that you manage a risky portfolio with an expected rate of return of 13% and astandard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of aportfolio in your fund and 25% in a T-bill money market fund.a. What is the expected return and standard deviation of your client's portfolio?b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client'soverall portfolio? Explain the sharp ratio.

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1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation?

1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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Question

1. Suppose your expectations regarding the stock market are as follows:
State of the
Probability HPR
Economy
Boom
0.3
33%
Normal growth
0.3
19
Recession
0.4
-15
a. What is the expected return, variance and standard deviation?
2. Assume that you manage a risky portfolio with an expected rate of return of 13% and a
standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a
portfolio in your fund and 25% in a T-bill money market fund.
a. What is the expected return and standard deviation of your client's portfolio?
b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's
overall portfolio? Explain the sharp ratio.

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