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?

Multiple Choice

• 5.63%

• 5.13%

• 6.08%

• 4.29%

• 6.36%