ased on the following information, what is the variance? State of Economy Recession Normal Boom Probability of State Rate of Return if State Occurs of Economy Multiple Choice O 12749 .03251 01625 02438 .30 .39 .31 -9.80% 11.30% 22.30% ‒‒‒

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State of Economy Bust Boom State of Economy Roll Bust Boom Ross Bust Boom Calculate the standard deviations for Roll and Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) Probability of State of Economy Probability of State of Economy .50 .50 .50 .50 .50 .50 Return Deviation from Expected Return -0.1950 0.2000 Security Returns if State Occurs 0.0600 -0.0600 Roll -14% 25 Squared Return Deviation 0.0380 0.0380 0² = Ross (0.0036) 0.0036 0²= 18% 6 Product 19.5000 0.0600

% Return on T-Bills, Stocks and Market Index   States of Economy Probability T-Bills Phillips Pay-up Rubber-Made Market Index Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean   7 16.9 20.7 19.6 15 Variance (%) ^2   0 549.09 244.124 358.04 313.6 Standard Deviation   0 23.4326695 15.6244712 18.92194493 17.7087549 Coefficient of Variation   0 1.386548491 7.54805372 0.965405354 1.18058366 Covariance wit MP   0 .0413 -.0275 .0231 .0314 Correlation with Market Index   0 0.9953 -0.9953 0.6894 1.0000 Beta   0 1.32 - 0.88 0.74 1.00 CAPM Req. Return   7.00 % 17.54 % -0.02% 12.89% 15.00% Valuation                ( Overvalued / Undervalued/Fairly Valued)   Valued Fairly…

Mansukh

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State of Economy Probability of State Security Returns if State Occurs of Economy Roll Ross Bust Boom 0.40 0.60 -10% 21% 28 8 Calculate the standard deviations for Roll and Ross by filling in the following table Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places. State of Economy Probability of State of Economy Return Deviation from Expected Return Squared Return Deviation Product Roll Bust 0.40 Boom 0.60 02 Ross Bust 0.40 Boom 0.60 -0.0520 0.0027 02=

2. Consider the following information: STATE ECONOMY Boom Good Poor Bust OF PROBABILITY OF RATE OF RETURN IF STATE OCCURS OF FIRM A FIRM B STATE ECONOMY 0.15 0.55 0.20 0.10 0.33 0.11 0.02 -0.12 0.45 0.10 0.02 -0.25 FIRM C b. What is the variance of this portfolio? The standard deviation? 0.33 0.17 -0.05 -0.09 a. Your portfolio is invested 25% each in A and C and 50% in B. What is the expected return of the portfolio?

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