# Expected return and standard deviation Finance Problem

Problem 1 (Chapter 13) Please use the following information to answer the following questions.

State Probability Return on A Return on B
Boom .65 0.30 0.05
Bust .35 0.10 0.20

What is the expected return for security A? __________________

What is the expected return for security B? __________________

What is the expected return for a portfolio that is 70% invested in A and 30% invested in B? __________

What is the standard deviation of security A? __________________

What is the standard deviation of security B? __________________

What is the standard deviation of a portfolio with one-quarter of the funds in A and the remainder of the funds in B? __________________

#### Solution Preview

...X0.05 + 0.35X0.20 = 10.25%

What is the expected return for a portfolio that is 70% invested in A and 30% invested in B? __________

The return for portfolio = 0.7X0.23 + 0.3X0.1025 = 19.175%

What is the standard deviation of security A? __________________

Standard deviation = square root (Sum (Expected return - ...