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An Investor Is Considering Purchasing Two Stocks for a Portfolio

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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 economic 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 a 7% and 11% returns for stocks A and B respectively.In a bust economy, stock A will have return of -20% and stock B -5%.Given the above information, calculate the portfolio standard deviation.


Definitions:

Fear-Evoking Stimuli

Events, objects, or situations that trigger a fear response.

Systematic Desensitization

A behavioral therapy technique used to reduce phobic responses and anxiety by gradually exposing the subject to the feared object or situation in a controlled manner.

Visual Images

Pictures or representations in a person's mind or produced by imagination.

Free-Floating Anxiety

A general feeling of uneasiness or anxiety that is not related to any specific object or situation.

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