Portfolio worksheet
consider the following:
scenario probability
returns
auto gold
portfolio (75% auto, 25% gold)
-8
+20
recession
normal
boom
1/3
1/3
1/3
+5
+18
.75(-8) + 25 (20) = -1.0%
.75(5) + 25 (3) = +4.5%
.75(18) + .25 (-20) = +8.5%
-20
auto
expected return
(-8+5+18)/3 = 5%
gold (+20+3-20)/3 = 1%
portfolio (-1+4.5+8.5)/3 = 4%
variance
auto
gold
portfolio
(169+0+169)/3 = 112.7 (std. 10.6%)
(361+4+441)/3 = 268.7 (std. 16.4%)
(25+25 +20.25)/3 = 15.2 (std 3.9%)
homework:
1) show expected return & variance of a 90% auto, 10% gold portfolio
2) show expected return & variance of a 25% auto 75% gold portfolio