Question

2) Suppose you hold a portfolio of two stocks in the healthcare industry. The future outcomes for these stocks depend mainly on the next healthcare bill to be passed by Congress. The possible outcomes and returns are:

Outcome	Probability	Return for Stock A	Return for Stock B
1=Republican Bill	0.8	12%	-5%
2=Democratic Bill	0.2	3%	20%

What is the expected return and a standard deviation of a portfolio that has 50% of its value in stock A and 50% in stock B?

Group of answer choices

a) 9.9% and 3.2%

b) 7.5% and 4%

c) 5.1% and 3.2%

Answer 1

Ans is C). 5,1% and 3.2%

Calculations-

Note-
Average Return = Sum of returns
Variance = Sum of Probability*(Return - Avg return )^2
Standard deviation = Squareroot (Variance)

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