ABC Investment Corporation Is Considering a Portfolio with 30% Weighting

question 246

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 expected return.

• A) 1.63%
• B) 2.63%
• C) 3.63%
• D) 4.63%
• E) 5.63%

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Definitions:

Internal Validity

The extent to which a study can demonstrate a cause-and-effect relationship between variables, free from external influence.

Random Assignment

A process used in experimental designs to assign subjects randomly to either the treatment group or the control group, ensuring that each participant has an equal chance of being placed in any group.

Equivalent

Equal in value, function, or meaning.

Confounding Variables

Variables that are not the primary interest of a study but can influence the outcome, making it difficult to establish a clear cause-and-effect relationship.