Question

In: Finance

Stock S is expected to return 12% in a boom and 6% in a normal economy....

Stock S is expected to return 12% in a boom and 6% in a normal economy. Stock T is expected to return 20% in a boom and 4% in a normal economy.

There is a probability of 40% that the economy will boom; otherwise, it will be normal.

What is the portfolio variance and standard deviation if 30% of the portfolio is invested in Stock S and 70% is invested in Stock T? Briefly discuss what this means to the stock.

Solutions

Expert Solution

Standard deviation of Portfolio

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.


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