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Suppose that there are two possible states of the world in the next year: Boom and Recession. Consider the following information about returns: I. Stock
Suppose that there are two possible states of the world in the next year: Boom and Recession. Consider the following information about returns: I. Stock X's rate of return is 15% in a boom, 2% in a recession. II. Stock Y's rate of return is 25% in a boom, -5% in a recession. III. The market rate of return is 18% in a boom, 1% in a recession. Caroline wants to form a portfolio of Stocks X and Y. Her portfolio return in the boom state should be equal to the market return in the boom state. What is the weight of Stock X in Caroline's portfolio? O A 60.3% B. 30.0% OC. 70.0% OD.85.7% OE 78.6%
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