18. What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, and C? 35 percent of the portfolio is invested in stock A and 50 percent is invested in stock C. State of Economy Probability of Returns if State Occurs State of Economy | Stock A Stock B Stock C Boom 10% 26% 9% 33% Normal 55% 12% 15% 22% Bust 35% -4% 28% -38%

Problem 1. The following are estimates for two stocks. Firm-Specific Standard Deviation 25% 40 Stock Expected Return Beta 7% A 0.90 1.30 B 11 The market index has a standard deviation of 24% and the risk-free rate is 4%. a) What are the standard deviations of stocks A and B? b) Suppose we build a portfolio with the following weights: 50% in stock A, 40% in stock B, and 10% in risk- free T-bills. Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio

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5 Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the returns of stock is 30% A. What is the average variance of stocks on the S&P? B. What is the average covariance of the stocks? C. Consider a portfolio of S&P stocks. What is the estimated volatility of the portfolio when there 10 stocks in the portfolio? What about 20 stocks in the portfolio?

Suppose you bought $48,000 worth of stock A and $80,000 worth of stock B. The standard deviation of returns is 59% for stock A and 27% for stock B. The two stocks' returns have a correlation of 0.2. What is the standard deviation of this portfolio's returns? a. 15.2% b. 18.6% c. 23.6% O d. 26.9% O e. 30.4% QUESTION 10