Chapter 13 formulas

Question 1

Expected rate of return =

Answer 1

expected rate of return =
Prob A (Return A) + Prob B (Return B) …

Question 2

Standard Deviation =

Answer 2

Standard deviation =
[ Prob A (Return A - Expected Rate of Return)ˆ2 + Prob B (Return B - Expected Rate of Returnˆ2) ]ˆ.5

Question 3

Variance =

Answer 3

Variance =
Prob A (Return A - Expected Rate of Return)ˆ2 + Prob B (Return B - Expected Rate of Return)ˆ2

Question 4

Expected Return on a portfolio =

Answer 4

Expected return on a portfolio =
[Invested in A / Total invested] (Return A) + [Invested in B / Total invested] (Return B)

Question 5

Beta portfolio =

Answer 5

Beta portfolio =
Percent (Ba) + Percent (Bb)