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Returns and Standard Deviations Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock

Returns and Standard Deviations

Consider the following information:

State of Economy Probability of State of Economy Rate of Return if State Occurs

Stock A Stock B Stock C Boom .20 .24 .45 .33 Good .35 .09 .10 .15 Poor .40 .03 .10 .05 Bust .05 .05 .25 .09 a. Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio?

b. What is the variance of this portfolio? The standard deviation?

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