1. The probability of the economy booming is 8 percent, while it is 70 percent for being normal, and 22 percent for being recessionary. A stock is expected to return 18.3 percent in a boom, 7.4 percent in a normal economy, and lose 6.4 percent in a recession. What is the standard deviation of the returns?

Multiple Choice

a. 6.84%

b.6.94%

c.8.61%

d.6.72%

2. The probability the economy will boom is 10 percent while the probability of a recession is 20 percent. Stock A is expected to return 15 percent in a boom, 9 percent in a normal economy, and lose 14 percent in a recession. Stock B should return 10 percent in a boom, 6 percent in a normal economy, and 2 percent in a recession. Stock C is expected to return 5 percent in a boom, 7 percent in a normal economy, and 8 percent in a recession. What is the standard deviation of a portfolio invested 20 percent in Stock A, 30 percent in Stock B, and 50 percent in Stock C?

Multiple Choice

a. .9%

b..6%

c.1.8%

d.4.9%

e.2.2%

e.7.32%