Consider the following probability distribution for stocks A and B: $$\begin{array} { c c c c }
\text { State } & \text { Probability } & \text { Return on Stock A } & \text { Return on Stock B } \
1 & 0.15 & 8 \% & 8 \% \
2 & 0.20 & 13 \% & 7 \% \
3 & 0.15 & 12 \% & 6 \% \
4 & 0.30 & 14 \% & 9 \% \
5 & 0.20 & 16 \% & 11 \% \
\hline
\end{array}$$ If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation?
A) 9.9%; 3%
B) 9.9%; 1.1%
C) 10%; 1.7%
D) 10%; 3%

Question

Consider the following probability distribution for stocks A and B: $$\begin{array} { c c c c } 
\text { State } & \text { Probability } & \text { Return on Stock A  } & \text { Return on Stock B } \
1 & 0.15 & 8 \% & 8 \% \
2 & 0.20 & 13 \% & 7 \% \
3 & 0.15 & 12 \% & 6 \% \
4 & 0.30 & 14 \% & 9 \% \
5 & 0.20 & 16 \% & 11 \% \
\hline
\end{array}$$ If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation?
A) 9.9%; 3%
B) 9.9%; 1.1%
C) 10%; 1.7%
D) 10%; 3%

Quizplus · Accepted Answer

The expected return is calculated by taking the weighted average of the returns in each state. The standard deviation is calculated using the variance of the portfolio returns.

Consider the Following Probability Distribution for Stocks a and B