Ms. Smith wants to invest in two securities, ABC and PQR, and the relevant information is...

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Finance

Ms. Smith wants to invest in two securities, ABC and PQR, andthe relevant information is below: State of the Economy ProbabilityReturn on ABC (%) Return on PQR (%) Bear 0.25 -15% 4% Moderate 0.55% 4% Bull 0.25 20% 4%
a. Calculate expected returns and standard deviations of twosecurities.
b. Ms. Smith shorts $1,000 of PQR and invests all proceeds fromthis short sale as well as $3,000 of her own money into ABC. Whatis the expected return and the standard deviation of herportfolio?

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3.6 Ratings (400 Votes)

Total Portfolio value Value of ABC Value of PQR 40001000 3000 Weight of ABC Value of ABCTotal Portfolio Value 40003000 13333 Weight of PQR Value of PQRTotal Portfolio Value 10003000 03333 ABC Scenario Probability Return rate of return probability See Answer

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Ms. Smith wants to invest in two securities, ABC and PQR, andthe relevant information is below: State of the Economy ProbabilityReturn on ABC (%) Return on PQR (%) Bear 0.25 -15% 4% Moderate 0.55% 4% Bull 0.25 20% 4%a. Calculate expected returns and standard deviations of twosecurities.b. Ms. Smith shorts $1,000 of PQR and invests all proceeds fromthis short sale as well as $3,000 of her own money into ABC. Whatis the expected return and the standard deviation of herportfolio?