1.
value:
2.50 points
Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. Assuming that all three states are equally likely. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.) 
State of 
Security Return 

Recession 
–9 
% 
Normal 
16 

Boom 
25 


2.
value:
2.50 points
Security Returns If State Occurs 

State of 
Probability of 


Economy 
State of Economy 
Roll 
Ross 

Bust 
.30 
16 
% 
14 
% 
Boom 
.70 
21 
5 


Calculate the expected returns for Roll and Ross by filling in the following table (verify your answer by expressing returns as percentages as well as decimals): (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your E(R) answers to 2 decimal places and your Product answers to 4 decimal places. Omit the “%” sign in your response.) 
Roll 
Ross 




State of Economy 
Probability of 
Return If 
Product 
Return if 
Product 

Bust 
.30 
% 
% 

Boom 
.70 
% 
% 





E(R) = 
% 
E(R) = 
% 




3.
value:
2.50 points
Use the following information to calculate the expected return and standard deviation of a portfolio that is 50 percent invested in 3 Doors, Inc., and 50 percent invested in Down Co.: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.) 
3 Doors, Inc. 
Down Co. 

Expected return, E(R) 
19 
% 
14 
% 

Standard deviation, σ 
49 
51 

Correlation 
.34 


Expected return 
% 
Standard deviation 
% 
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4.
value:
2.50 points
Consider two stocks, Stock D, with an expected return of 20 percent and a standard deviation of 35 percent, and Stock I, an international company, with an expected return of 8 percent and a standard deviation of 23 percent. The correlation between the two stocks is –.21. What is the weight of each stock in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.) 
Weight of Stock D 

Weight of Stock I 