onsider the case of two financial assets and three market conditions (states). The table below gives the respective probability for each market condition and the return of each asset in each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets a
onsider the case of two financial assets and three market conditions (states). The table below gives the respective probability for each market condition and the return of each asset in each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets a
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider the case of two financial assets and three market conditions (states). The table
below gives the respective probability for each market condition and the return of each asset
in each one of them.
Market Conditions
| State | Recession | Normal | Expansion |
| Probability of state | 30% | 40% | 30% |
| -30% | 20% | 55% | |
| Return of asset B | -10% | 70% | 0% |
Consider the portfolio with 50% investment in each of the two assets above. Calculate
the expected return and the standard deviation of the portfolio.
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