FINA Homework: Chapter 8 Homework Score: 0 of 1 pt P8-21 (similar to) 8 of 11...

A) i)Expected return of j = probablity × return

= 0.28 × 0.055 + 0.36 × 0.055 + 0.24 × 0.055 + 0.12 × 0.055

   = 0.015 + 0.0198 + 0.0132 + 0.0066

= 0.055 or 5.5%

ii)Expected return of k = probability × return

= 0.28 × 0.21 + 0.36 × 0.11 + 0.24 × 0.025 + 0.12 × -0.050

= 0.0588 + 0.0396 + 0.0060 + (0.0060)

= 0.0984 or 9.84%

iii)Expected return of l = probability × return

= 0.28 × 0.27 + 0.36 × 0.20 + 0.24 × 0.070 + 0.12 × -0.22

= 0.0756 + 0.072 + 0.0168 - 0.0264

= 0.1380 or 13.80%

C) expected return of portfolio = weight × return

= 0.11 × 5.5% + 0.53 × 9.84% + 0.36 × 13.80%

= 0.6050% + 5.22% + 4.97%

= 10.79%

B) Using financial calculator to calculate standard deviation and variance

•First press 2nd and then data

• Then fill in the data

Standard deviation of J

Inputs: X1 = probability × return = 0.015

X2 = 0.0198

X3 = 0.0132

X4 =0.0066

• Now again press 2nd and then stat

Then press down arrow

We get , Standard deviation = 0.0055 or 0.55%

  variance= 0.30%

standard deviation of k

Do same step as done for asset j

Inputs: X1 = 0.0588

X2 = 0.0396

X3 = 0.0060

X4 = -0.0060

Press 2nd and then stat

Then press the down arrow button

We get, standard deviation = 0.0299 or 2.99%

Variance = 8.94%

Standard deviation of L

Repeat the same step

Inputs : X1 = 0.0756

X2 = 0.072

X3 = 0.0168

X4 = -0.0264

Press 2nd and then stat

Then press down arrow

We get, standard deviation = 0.0487 or 4.87%

Variance = 23.73%

D) Standard deviation = weight × standard deviation

   = 0.11 × 0.55% + 0.53 × 2.99% + 0.36 × 4.87%

= 0.061% + 1.58% + 1.75%

= 3.39%

Variance = 3.39%^ 2 = 11.5%