Answered step by step
Verified Expert Solution
Question
1 Approved Answer
(5) Aussteak is a company which enjoys good sales during boom times but struggles when people cut back on their luxuries in a recession. Returns
(5) Aussteak is a company which enjoys good sales during boom times but struggles when people cut back on their luxuries in a recession. Returns in boom times are 50% but during recessions fall to 25%. Ausspam by contrast is more resilient showing returns of 20% in the boom and 18% in the recession. An investor holds a portfolio comprising 260 shares in Aussteak and 380 shares in Ausspam. The correlation between returns of the two firms is just 0.15. If the probability of recession is 0.3, calculate the expected return and variance of the portfolio. (20%)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started