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Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession. Stock B deals with inferior goods
Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession. Stock B deals with inferior goods and has expected returns of 6 percent in a normal economy and 15 percent in a recession. The probability of a recession occurring is 25 percent with a zero probability of a boom. What is the standard deviation of a portfolio that is equally weighted between the two stocks?
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