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In: Finance

14.You are expecting either a recession or steady growth next year. Recession has a 47% probability...

14.You are expecting either a recession or steady growth next year. Recession has a 47% probability of happening. In steady growth, stock ABC returns 9.25% and stock XYZ returns 6.25%. In a recession, stock ABC returns -5.10% and stock XYZ returns -2.90%. You are going to put together a portfolio of these two stocks with positive portfolio weight in each and allocate 33% of the portfolio to ABC with the remainder to XYZ. What is the variance of the portfolio? options: 0.00294 0.00301 0.00309 0.00316 0.00324

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Expert Solution

The answer is A) 0.00294


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