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8.3 Expected Value

8.3 Expected Value
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  • 17. Investment Portfolio

    The table shows the rates of return of two stocks for different economic states. Compare the expected rates of return for the two stocks.

    • Worked-Out Solution

      A spreadsheet helps to organize the calculations.

      Stock V has the better expected value. Of course, if you expect a recession, then stock W is the better option.

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     _    _    _    _     _____      ___              
    | |  | || | || | ||  / ____||   / _ \\    ____    
    | |/\| || | || | || / //---`'  | / \ ||  |    \\  
    |  /\  || | \\_/ || \ \\___    | \_/ ||  | [] ||  
    |_// \_||  \____//   \_____||   \___//   |  __//  
    `-`   `-`   `---`     `----`    `---`    |_|`-`   
                                             `-`      
    
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  • 18. Investment Portfolio

    The table shows the rates of return of two stocks for different economic states. You invest 50% of your money in stock V and 50% of your money in stock W. What is the expected rate of return?

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     ______      ___     _____       ___      ____    
    |      \\   / _ \\  |  __ \\    / _ \\   |  _ \\  
    |  --  //  | / \ || | |  \ ||  | / \ ||  | |_| || 
    |  --  \\  | \_/ || | |__/ ||  | \_/ ||  | .  //  
    |______//   \___//  |_____//    \___//   |_|\_\\  
    `------`    `---`    -----`     `---`    `-` --`  
                                                      
    
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  • 19. Investment Portfolio

    The table shows the rates of return of three stocks for different economic states. Find the expected rate of return for the portfolio.

    portfolio

    • Worked-Out Solution

      A spreadsheet helps to organize the calculations.

      To find the rate of return for the portfolio, multiply each expected value by the percent in the portfolio.

      So, overall, this portfolio has a rate of return of 8.72%. Do you see the philosophy for building a portfolio? The general idea is to mix the different types of investments. By doing this, you don't usually get the best possible return, but you lessen your chance of a poor return or a loss.

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      _____     ______    _  _    __   __    _____   
     / ____||  /_   _//  | \| ||  \ \\/ //  |__  //  
    / //---`'   -| ||-   |  ' ||   \ ` //     / //   
    \ \\___     _| ||_   | .  ||    | ||     / //__  
     \_____||  /_____//  |_|\_||    |_||    /_____|| 
      `----`   `-----`   `-` -`     `-`'    `-----`  
                                                     
    
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  • 20. Investment Portfolio

    The table shows the rates of return of three stocks for different economic states. Find the expected rate of return for the portfolio.

    Comments (0)

    These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.
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     __   __    ______    ____       ___              
     \ \\/ //  /_   _//  |  _ \\    / _ \\      ___   
      \   //    -| ||-   | |_| ||  / //\ \\    /   || 
      / . \\    _| ||_   | .  //  |  ___  ||  | [] || 
     /_//\_\\  /_____//  |_|\_\\  |_||  |_||   \__ || 
     `-`  --`  `-----`   `-` --`  `-`   `-`     -|_|| 
                                                 `-`  
    
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  • 21. Investment Portfolio

    The table shows the rates of return of three stocks for different economic states. Find the expected rate of return for the portfolio.

    data folder

    portfolio

    • Worked-Out Solution

      A spreadsheet helps to organize the calculations.

      To find the rate of return for the portfolio, multiply each expected value by the percent in the portfolio.

      So, overall, this portfolio has a rate of return of 8.825%.

    Comments (0)

    These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.
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     _    _     ______   _____      _____    _    _   
    | \  / ||  /_   _// |  __ \\   |  ___|| | || | || 
    |  \/  ||   -| ||-  | |  \ ||  | ||__   | || | || 
    | .  . ||   _| ||_  | |__/ ||  | ||__   | \\_/ || 
    |_|\/|_||  /_____// |_____//   |_____||  \____//  
    `-`  `-`   `-----`   -----`    `-----`    `---`   
                                                      
    
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  • 22. Investment Portfolio

    The table shows the rates of return of three stocks for different economic states. Find the expected rate of return for the portfolio.

    Comments (0)

    These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.
    When posting a comment, you agree to our Terms of Use.

      _____     ______    _  _    _    _     _  __  
     / ____||  /_   _//  | \| || | || | ||  | |/ // 
    / //---`'   -| ||-   |  ' || | || | ||  | ' //  
    \ \\___     _| ||_   | .  || | \\_/ ||  | . \\  
     \_____||  /_____//  |_|\_||  \____//   |_|\_\\ 
      `----`   `-----`   `-` -`    `---`    `-` --` 
                                                    
    
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