CFA Latest CFA Level 1 Discussions portfolio return ?

portfolio return ?

  • This topic has 1 reply, 2 voices, and was last updated Dec-20 by fp92.
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    • pcunniff
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      Hello! I cannot for the life of me get this math right. Has anyone tried this in excel? I get 3.9% which is the sq root of .001542

      Use the following probability distribution to calculate the standard deviation for the portfolio.

      State of the Economy Probability Return on Portfolio

      Boom .3 0.3015%

      Bust .7 0.703%

      A)

      6.5%.

      B)

      5.5%.

      C)

      6.0%.

      Explanation

      [0.30 × (0.15 – 0.066)2 + 0.70 × (0.03 – 0.066)2]1/2 = 5.5%.

      (Study Session 2, Module 8.3, LOS 8.l)

    • fp92
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      Hi, there seems to be quite a few errors in your copy/pasting of the question, can you make sure it is right?

      I assume the probabilities are 30% boom with 15% return, and 70% bust with 3% return.

      So the mean return is 6.6% = (0.3*0.15) + (0.7*0.03)

      The answer notation is messy too, as the power function is missing.

      But in essence the answer is correct where std deviation is 5.5% = [0.30*(0.15 – 0.066)^2 + 0.70 × (0.03 – 0.066)^2]^0.5

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