An Investment fiRm Is Considering a Portfolio with Equal Weighting

question 3

Multiple Choice

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

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The state of being prepared to engage in a particular action or process.

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