Answer to Question #228233 in Finance for benson

Question #228233

Below are the returns for two assets;




State of nature

r1

r2

probability

Weak growth

15%

15%

1/3

Strong growth

30%

12

1/3

Very strong growth

45%

9

1/3

Expected returns

30%

12

total 1.0


Calculate the two variances and Cov (r1, r2). If assets 1 and 2 are combined 50-50 into a portfolio, what is the variance of this portfolio? Show your calculations.


1
Expert's answer
2021-08-24T17:01:57-0400

Variance tells us the degree of spread in

data set.

S2=sample variance

=the value of the one observationn

=the mean value of all observations

n=the number of observations

r1

Squared deviation

Variance


r2

Squared deviation

Variance


Average variance



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