Part II: Quantitative Analysis I [Question (20 marks]
1. Details of two “stocks” are recapped below, for three possible future economic states. State of Hip Store’s Big th’s
Enenemy Pruh. 55E Return 55E Return
1 55% 23% 2% 2 12% 0% 5% 3 25% -22% 22% Suppuse that yuu have a wealth L‘If MIME, and that yuu plan tu invent $40K in the Hip Store’s Stack
and $?IJK in Big th‘s stoolr. Use the steps helow to ealeulere the expected return? variance, and standard deviation of the portfolio
return. Part 1: Calculate the po?Ioho‘s return under each of the following seenarius. Shov.r work. {a} [2 marks] Portfolio return if State 1 of Eeenumy emerges: [hi [2 marks] Portfolio return if State 2 of Erononi},r emerges:
{1:} [2 marks] Pnrtfuliu return if State 3 of Hamilton].r emerges: Part 2: li‘irfslt1 in the table helm? ?ll in yuur enewers from Part 1. State ufEeenonl Preh. Pertcfelice Eli» Return
1 55% [?ll in, from In in Part 1] 2 10% [EJ1in,1=:mn 1b in Part1)
3 25% [?ll in, From 11: in Part 1} [5 marks) New, using the infunnatiun in the ahuve talzlnle1 calculate the expected return on your
pertcfeliu. Please be Sure to W far this calculation. £3,113; [6 marks] Given the infomerion ?uni Part 2 immediater above, oaloulate the varianoe of
your portfolio return. Show ALLwork. Part 4: {3 marks} Given the information ahove1 what is the standard deviation of your portfolio
return
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