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There are only two possible states of the economy. State 1 has a 63% chance of...

There are only two possible states of the economy. State 1 has a 63% chance of occurring. In State 1, Asset A returns 7.00% and Asset B returns 10.00%. In State 2, Asset A returns -3.80% and Asset B returns -6.80%. A portfolio of just these two assets is invested 47% in Asset A (with Asset B comprising the remainder without any negative weights). What is the standard deviation of the portfolio's returns?

6.75%

6.92%

7.09%

7.26%

7.42%

Solutions

Expert Solution

The answer is a) 6.75%


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