a. What is the expected return of each asset? b. What is the variance and the standard deviation c. What is the expected return of a portfolio with 1 d. What is the portfolio's variance and standard de Data Table Hint Make sure to round all intermediate calculatio (Click on the following icon D in order to copy its contents into a spreadsheet.) a. What is the expected return of asset J? (Round to four decimal places.) Roturn on Return on Return on State of Economy Boom Probability of State Asset J in State Asset K in Stale Asset L in State 0.28 0.070 0.260 0.180 0.200 Growth 0.37 0.070 0.140 Stagnant 0.25 0.070 0.040 0.060 Recession 0.10 0.070 <-0.100 -0.210

The variance of expected returns is equal to the square root of the expected returns. a. True b. False

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Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected​ return, r​, is 18.7​%; and that the coefficient of​ variation, CV​, is 1.88​, answer the following​ questions:   a. Find the standard deviation of​ returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of​ occurrence: (1)​ 68%, (2)​ 95%, (3)​ 99%.

1. Determine the expected return and the variance of the portfolio formed by the two assets S₁, S₂ with weights ₁ = 0.6, x2 = 0.4. The assets returns are described by the following scheme: scenario W1 2لا W3 probability 0.1 0.4 0.5 T1 -20% 0% 20% 12 -10% 20% 40%

Suppose two asset returns are described by a two factor model, n = 0% + 11 + 1.82 + e1 2 = -1% + 2/1 + 0.52 + e2 where the volatility of first factor is 30%, the volatility of the second factor is 10%, and the correlation between the two factors is 0.5. Suppose also that the volatilities of the error terms ej and ez are both 10%. What is the covariance of n and r2 ? (Nearest 0.0001).

Given the following probability distribution, what are the expected return and the standard deviation of returns for Security J? State Pi ri 1 0.5 11% 2 0.3 8% 3 0.2 5% O 9.40%; 2.04% O 8.90%; 2.34% O 7.40%; 2.94% O 8.40%; 2.64% O 7.90%; 1.74%

Suppose that there are four risky assets whose expected returns E(r) and variance- covariance matrix (S) are shown in the spreadsheet below. We also consider the portfolio weights of two portfolios x and y of risky assets (see Cells B8:E9): 1 8 Portfolio x 9 Portfolio y A FOUR-ASSET PORTFOLIO PROBLEM Variance-covariance, S 20 Portfolio variance, 21 Portfollo standard deviation o 0.10 0.01 0.03 0.05 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Ejr, 13 Variance, 14 Covariance() 15 Correlation P 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 19 Mean portfolio return, r 0.01 0.30 0.06 -0.04 0.20 0.20 10.50% 0.1216 0.0714 0.4540 ? ? ? 0.3 0.03 0.06 0.40 0.02 0.30 0.10 ? 0.05 0.02 0.50 0.40 0.10 0.10 0.60 Mean, Er Variance, 0.2014 Question il Question ili Mean returns E(r) ? 7% 9% 11% 20% Question i i. Write the Excel formula used to estimate the mean and variance of portfolio y in cells E12 and E13,…

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Question 1 Are the following statements true or false? Provide a short justification for your answer. (You are evaluated on your justification.) Remember that a statement is false if any part of the statement is false. A single correct counterexample is sufficient to show that a statement is false. a) assets A, B, C, with expected returns and standard deviations: Suppose you are a mean-variance optimizer. The risk-free rate is 3%. There are three risky E [řa] = 10%, SD [FA] = 5% E [řB] = 15%, SD [řB] = 7% E [řc] = 12%, SD [řc] = 9% You cannot invest in all three risky assets. Instead, you have to choose whether to invest in only assets (A, B), or only assets (A, C). Asset B mean-variance dominates asset C, since it has higher return and lower standard deviation than asset C. Thus, as long as you are risk-averse, you would always prefer the set of assets (A, B) to the set assets (A, C). b) the same market B's. The covariance matrix between A, B, C is: Suppose the CAPM holds. Consider…