Answered step by step
Verified Expert Solution
Link Copied!

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

image text in transcribed

(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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Regulation Of Securities Markets And Transactions

Authors: Patrick S. Collins

1st Edition

0470601965, 978-0470601969

More Books

Students also viewed these Finance questions

Question

What is the orientation toward time?

Answered: 1 week ago

Question

4. How is culture a contested site?

Answered: 1 week ago