There Are Three Stocks: A, B, and C If You Invested in an Equally-Weighted Portfolio of Stocks a Either

question 62

Multiple Choice

There are three stocks: A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year (each equally likely to occur) ; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below: $\begin{array}{cccc}&\text { State of Nature }&\text {Moderate }&\text { Weak }\\\text { Stock } & \text { Strong Growth } & \text { Growth } & \text { Growth } \\\text { A } & 39\% & 17 \% & -5 \% \\\text { B } & 30 \% & 15 \% & 0\% \\\text { C } &6\% &14\% &22\%\end{array}$

If you invested in an equally-weighted portfolio of stocks A and B, your portfolio return would be ___________ if economic growth were moderate.

• A) 3.0%
• B) 14.5%
• C) 15.5%
• D) 16.0%

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Definitions:

Student Organizations

Groups formed within educational institutions by students aiming to facilitate social, educational, professional, or cultural objectives.

Probability

The measure of the likelihood that an event will occur, quantified as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Hypergeometric Random Variable

A type of random variable that describes the number of successes in a sequence of n draws from a finite population without replacement.

Tchebysheff's Theorem

A statistical rule stating that for any data set, regardless of distribution, a minimum proportion of values lie within a certain number of standard deviations from the mean.