Question
Suppose there are only two possible future states of nature: Good and Bad. There is a 25% probability that the future will be Good. Suppose
Suppose there are only two possible future states of nature: Good and Bad. There is a 25% probability that the future will be Good. Suppose also that there are two stocks: A and B. Stock A will return 7% if the future is Good and will return 1% if the future is Bad. Stock B will return 3% if the future is Good and -5% if the future is Bad. If you have a portfolio that contains 60% of Stock A and 40% of Stock B, what will be the standard deviation of the portfolio? (hint: the portfolio expected return is 0.3%)
Select one: a. 8.67% b. 2.94% c. 12.35% d. 15.2% e. None of the above
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