What Is the Variance of the Returns on a Portfolio

question 38

Multiple Choice

What is the variance of the returns on a portfolio that is invested 40 percent in Stock S and 60 percent in Stock T? $$\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\\text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock S } & \text { Stock T }\end{array}\\\text { Boom } & .06& \begin{array}{ll}.22& \quad \quad .18\end{array} \\\text { Normal } & .92 & \begin{array}{ll}.15 & \quad \quad.14\end{array} \\\text { Bust } & .02&\begin{array}{ll}-.26 & \quad \quad -.09\end{array}\end{array}$$

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Definitions:

Chemical Reaction

A process in which substances interact, leading to the formation of new substances with different properties.

Molecular Bonds

Molecular bonds are attractive forces that hold atoms together in molecules, including ionic, covalent, and hydrogen bonds among others.

Reactants

are substances initially present in a chemical reaction that are consumed during the reaction to make products.

Products

Substances formed as a result of a chemical reaction, found on the right side of a chemical equation.