XYZ Investment Corporation Is Considering a Portfolio with 70% Weighting

question 23

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 expected return for the portfolio.

• A) 8%
• B) 7%
• C) 6%
• D) 5%
• E) 4%

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