XYZ Investment Corporation Is Considering a Portfolio with 70% Weighting

question 312

Multiple Choice

XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in 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 25%, 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) 0.00451
• B) 0.00351
• C) 0.00251
• D) 0.00151
• E) 0.00051

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Definitions:

Real Number Line

A line that visually represents all real numbers in a continuous sequence, where each point corresponds to a real number.

Real Number Line

A line that graphically represents all possible real numbers, where each point corresponds to a unique real number.

Entirely Negative

A term describing a scenario where all values or aspects of something are negative or below zero.

Entirely Positive

A term that could suggest a situation or value is purely positive, without any negative parts or aspects. NO.