Question

please answer

Rep Save & LR SUO You decide to invest in a portfolio consisting of 22 percent Stock A, 45 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of Economy Recession Normal Boom Probability of State of Economy . 125 Return It State Occurs Stock Stock B Stock C -11.201 - 4.601 -13.608 10.500 10.884 18.000 21.771 25.551 30.25% .188 1 0 0 0 0 0

Answer 1

Expected Return during recession =22%*-11.20%+45%*-4.60%+33%*-13.60% =-9.022%
Expected Return during normal =22%*10.50%+45%*10.88%+33%*18% =13.146%
Expected Return during normal =22%*21.77%+45%*25.55%+33%*30.25% =26.2694%
Expected of Return =0.125*-9.022%+0.687*13.146+0.188*26.2694% =12.922%

Variance of Portfolio =0.125*(-9.022%-12.922%)^2+0.687*(13.146%-12.922%)^2+0.188*(26.2694%-12.922%)^2
=0.00937(option d is correct option)