FIN2601 Assignment 1 Semester 1 2026 (792539) - DUE 16 April 2026; 100% CORRECT AND TRUSTED SOLUTIONS

, FIN2601 Assignment 1 Semester 1 2026 (792539) - DUE 16 April 2026



Question 1

1.1 Calculate the expected return of the market portfolio using the
probability distribution provided.
To calculate the expected return of the market portfolio (E[Rm]), we use the
weighted average of all possible market returns, where the weights are the
probabilities of each occurrence.
Formula:

E[Rm]=i=1∑n(Pi×Rm,i)
Where:
 Pi = Probability of state i
 Rm,i = Market return in state i
Calculation Steps:
1. State 1: 0.1×10%=1.0%
2. State 2: 0.2×12%=2.4%
3. State 3: 0.4×13%=5.2%
4. State 4: 0.2×16%=3.2%
5. State 5: 0.1×17%=1.7%
Summation:

E[Rm]=1.0%+2.4%+5.2%+3.2%+1.7%
E[Rm]=13.5%
Answer: The expected return of the market portfolio is 13.5%.