ABC Investment Corporation Is Considering a Portfolio with 30% Weighting

question 362

Multiple Choice

ABC Investment Corporation is considering a portfolio with 30% weighting in a cyclical stock and 70% 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 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 the portfolio standard deviation.

• A) 4.97%
• B) 5.97%
• C) 6.97%
• D) 7.97%
• E) 8.97%

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