Question
Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession. Stock B is expected to return
Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession. Stock B is expected to return 8 percent in a normal economy and 2 percent in a recession. The probability of the economy being normal is 80 percent and the probability of a recession is 20 percent. What is the covariance of these two securities?
.004203
.004115
.003280
.003876
.003915
You want to compile a $1,000 portfolio which will be invested in Stocks A and B plus a risk-free asset. Stock A has a beta of 1.2 and Stock B has a beta of .7. If you invest $300 in Stock A and want a portfolio beta of .9, how much should you invest in Stock B?
$700.00
$268.40
300.00
$771.43
$608.15
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