Question
Miller Trust Corporation is considering a portfolio with 75% weighting in a cyclical stock and 25% weighting in a countercyclical stock. It is expected that
Miller Trust Corporation is considering a portfolio with 75% weighting in a cyclical stock and 25% weighting in a countercyclical stock. It is expected that there will be four economic states: Excellent, Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 35%, 25% and 1%, -2% in Excellent, Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -10% -8%, 2% and 14% in Excellent, Good, Average and Bad economies respectively. Given this information, calculate (rounded to 4 decimal places): Expected return for the portfolio; Variance for the portfolios returns.
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