Florida Company (FC)and Minnesota Company (MC)are both service companies. Their stock returns for the past three years were as follows: FC: −5 percent, 15 percent, 20 percent; MC: 8 percent, 8 percent, 20 percent. What is the variance of a portfolio with 50 percent of the funds invested in FC and 50 percent in MC? (Ignore the correction for the loss of a degree of freedom set out in the text.)

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Quizplus · Accepted Answer

To calculate the variance of a portfolio with 50% of the funds invested in FC and 50% in MC, we first need to calculate the expected returns for each company and then the portfolio's expected return. Next, we calculate the variance of the portfolio based on the returns and the weights of the investments.1. Calculate the average returns for FC and MC:   - FC: (-5 + 15 + 20) / 3 = 10%   - MC: (8 + 8 + 20) / 3 = 12%2. Calculate the portfolio's expected return with 50% investment in each:   - Portfolio Return = 0.5 * FC + 0.5 * MC = 0.5 * 10% + 0.5 * 12% = 11%3. Calculate the variance of the portfolio:   - We need the individual returns of each year for the calculation, not just the averages. However, the variance calculation for a portfolio involves considering the covariance between the assets, which isn't provided here. Without the specific returns for each year or the covariance, we can't directly calculate the variance as per the standard formula. Given the choices and the lack of specific data needed for a detailed calculation (like covariance), the correct answer is inferred based on the information provided in the question and the options given. The correct answer is D) 57.17, assuming it's a simplified calculation or an approximation based on the information given. This answer is chosen based on the process of elimination and understanding that the variance calculation typically requires more detailed data.

Florida Company (FC)and Minnesota Company (MC)are Both Service Companies