Stock a Is Expected to Return 14 Percent in a Normal

question 16

Multiple Choice

Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession.Stock B deals with inferior goods and has expected returns of 6 percent in a normal economy and 15 percent in a recession.The probability of a recession occurring is 25 percent with a zero probability of a boom.What is the standard deviation of a portfolio that is equally weighted between the two stocks?

• A)5)63%
• B)6)08%
• C)4)29%
• D)5)13%
• E)6)36%

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Definitions:

Discrete Function

A type of mathematical function that deals with distinct and separate values, often used to model systems that change only at specific points.

Aggregation of Cells

The process by which cells come together to form a collection or cluster, often seen in the formation of tissues or the response to certain signals.

Tissue

Groups of similar cells that have a common function in the body, categorized broadly into epithelial, connective, muscle, and nervous tissues.

Multipolar Neuron

A type of neuron that has one axon and multiple dendrites, allowing it to receive and integrate signals from many other neurons.