XYZ Investment Corporation Is Considering a Portfolio with 70% Weighting

question 390

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 standard deviation.

• A) 9%
• B) 8%
• C) 7%
• D) 6%
• E) 5%

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Definitions:

Focuses Light

The process of adjusting the path of light rays to converge at a point or to spread out from a point.

Retina

The light-sensitive layer of tissue at the back of the inner eye, which includes rods and cones that process visual images and send them to the brain.

Cornea

The transparent front part of the eye that covers the iris, pupil, and anterior chamber, responsible for focusing most of the light that enters the eye.

Purity

The condition or quality of being free from contamination, pollutants, or immoral behavior; often associated with cleanliness or moral wholesomeness.