Question
XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30% weighing in a countercyclical stock. It is expected that
XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30% weighing in a countercyclical stock. It is expected that there will be three economic states; Good, Average, and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5%, and 1% in Good, Average, and Bad economics respectively. The countercyclical stock is expected to have returns of -8%, 2%, and 14% in Good, Average, and Bad economies respectively. Given this information, calculate the portfolio return.
a) 6.5%
b) 8.03%
c) 5.0%
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