state probability. return S. T
boom 20%. 17% 7%
normal 80%. 13% 10%
Answer:
0.000023
Explanation:
Given the above Question, here is the answer:
E(r)Boom = (0.60 * 0.17) + (0.40 * 0.07) = 0.13
E(r)Normal = (0.60 * 0.13) + (0.40 * 0.10) = 0.118
E(r)Portfolio = (0.20 * 0.13) + (0.80 * 0.118) = 0.1204
Therefore: to get the variance in this case, we calculate the following:
VarPortfolio = 0.20 (0.13 - 0.1204)²] + 0.80 (0.118 - 0.1204)² = 0.000023
Hence, the final answer is = 0.000023
