XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in a countercyclical stock. It is expected that
XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting 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 economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, what is the expected return of 'cyclical stock'?
a. 10.6%
b. 11.1%
c. 10.3%
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Authors: Peter S Kaufman, Henry F Owsley
2nd Edition
1587983044, 978-1587983047
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