Stock S Is Expected to Return 12 Percent in a Boom

question 22

Multiple Choice

Stock S is expected to return 12 percent in a boom and 6 percent in a normal economy.Stock T is expected to return 20 percent in a boom and 4 percent in a normal economy.There is a probability of 40 percent that the economy will boom; otherwise,it will be normal.What is the portfolio variance if 30 percent of the portfolio is invested in Stock S and 70 percent is invested in Stock T?

• A).002220
• B).004056
• C).006224
• D).008080
• E).098000

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Definitions:

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