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You are expecting either a recession or steady growth next year. Recession has a 49% probability of happening. In steady growth, stock ABC returns 9.00%
You are expecting either a recession or steady growth next year. Recession has a 49% probability of happening. In steady growth, stock ABC returns 9.00% and stock XYZ returns 6.00%. In a recession, stock ABC returns -5.00% and stock XYZ returns -2.80%. You are going to put together a portfolio of these two stocks with positive portfolio weight in each and allocate 31% of the portfolio to ABC with the remainder to XYZ. What is the variance of the portfolio?
a) 0.00271
b) 0.00278
c) 0.00284
d) 0.00291
e) 0.00298
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