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An investor has two stocks in her portfolio: Apple and Banana. The weights are 30% for Apple and 70% for Banana. There are three possible
An investor has two stocks in her portfolio: Apple and Banana. The weights are 30% for Apple and 70% for Banana. There are three possible economic states in the future, and the stock returns in these states are shown below. The risk-free rate is 1% and the expected market return is 8%. What is the return variance of the portfolio?
Probability Apple Banana
State1 0.3 11% 18%
State2 0.4 8% 6%
State3 0.3 -1% -10%
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