What Is the Standard Deviation of the Returns on a $30,000

question 47

Multiple Choice

What is the standard deviation of the returns on a $30,000 portfolio that consists of Stocks S and T? Stock S is valued at $18,000. $$\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\\text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock S } & \text { Stock T }\end{array}\\\text { Boom } & .05& \begin{array}{ll}.11& \quad \quad .09\end{array} \\\text { Normal } & .85 & \begin{array}{ll}.08 & \quad \quad.07\end{array} \\\text { Bust } & .10&\begin{array}{ll}-.05& \quad \quad .04\end{array}\end{array}$$

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Definitions:

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than its competitors.

Absolute Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.

Specialize

To focus on a particular area of study, work, or production, becoming an expert or highly skilled in that area.

Import

The act of bringing goods or services into a country from abroad for sale.