An investment ﬁrm is considering a portfolio with equal weighting in a cyclical stock and 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
12%, 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, calculate portfolio variance.
A) .00094
B) .00084
C) .00074
D) .00064
E) .00054

Question

Quizplus · Accepted Answer

The Answer of An investment ﬁrm is considering a portfolio with equal weighting in a cyclical stock and 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
12%, 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, calculate portfolio variance.
A) .00094
B) .00084
C) .00074
D) .00064
E) .00054

An Investment ﬁRm Is Considering a Portfolio with Equal Weighting