Question
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 67%. 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 | ||
| State | Probability | Expected HPR | Expected HPR |
| Severe recession | 5.00% | -57.00% | -19.00% |
| Mild recession | 25.00% | -11.00% | 15.00% |
| Normal growth | 40.00% | 35.00% | 2.00% |
| Boom | 30.00% | 30.00% | -5.00% |
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