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Your client holds a risky portfolio P that consists of two assets: Stock A and Stock B. The portfolio weight of stock A in risky
Your client holds a risky portfolio P that consists of two assets: Stock A and Stock B. The portfolio weight of stock A in risky portfolio P is 37%. The rest is investment in Stock B. You expect the following macroeconomic conditions and the assets' expected performance as shown below. What is the expected return and standard deviation of risky portfolio P? Stock A Stock B Probability Expected HPR Expected HPR 5.00% -78.00% - 19.00% State Severe recession Mild recession Normal growth Boom 50.00% -11.00% 15.00% 40.00% 35.00% 78.00% -57.00% 5.00% 71.00% 1.1476; 0.1877 0.2500; 0.3193 0.0671; 0.1276 None of the options are correct You are given the following data Stock A Expected return Standard deviation 8.00% 13.00% Stock B Expected return Standard deviation 7.50% 17.00% The correlation of Stock A and Stock B is 0.05. What is the variance of risky portfolio P with 43% in Stock A and the rest in Stock B? 0.01306 0.05151 0.03872 None of the options are correct
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