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
Related questions
Question
100%
What is the standard deviation of the portfolio that invests equally in all three assets M, N, and O?
Transcribed Image Text:States
Probability
Asset M Return
Asset N Return
Asset O Return
Вoom
32%
13%
23%
5%
Normal
50%
11%
15%
11%
Recession
18%
5%
3%
13%
Expert Solution
Step 1B
Portfolio Return = Return on asset M * 1/3 + Return on asset N * 1/3 + Return on asset O * 1/3
Portfolio Mean = sum of (probability * portfolio return)
Portfolio variance =sum of (Probability*(Portfolio Return - Mean of Portfolio Return)^2)
Portfolio standard deviation = square root of variance
Step 2
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