An Investor Is Considering Purchasing Two Stocks for a Portfolio

question 94

Essay

An investor is considering purchasing two stocks for a portfolio.Stock A will comprise of 40% of the portfolio and Stock B 60%.It is expected that three economics states may occur, with a 40% probability of a boom economy, 50% probability of an average economy, and a 10% probability of a bust economy.If a boom economy transpires, Stock A will yield an 11% return and Stock B 15%.An average economy will see at 7% and 11% returns for Stock A and B respectively.In a bust economy, Stock A will have a return of -20% and Stock B -5%.Given the above information, calculate the portfolio standard deviation.

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Definitions:

Guthrie

A psychologist recognized for his "contiguity theory" of learning, positing that associations between stimuli and responses are established through pairing or association.

Competing Associations

In learning and memory, the concept where multiple stimuli or ideas are linked to a single response or memory, leading to potential conflicts in recall or behavior.

Stimuli

External or internal elements that elicit responses from an organism or system.

S-R Association

The connection between a stimulus and the response it triggers, fundamental to behaviorist theories of learning and conditioning.