Stock S Is Expected to Return 12 Percent in a Boom,9

question 31

Multiple Choice

Stock S is expected to return 12 percent in a boom,9 percent in a normal economy,and 2 percent in a recession.Stock T is expected to return 4 percent in a boom,6 percent in a normal economy,and 9 percent in a recession.The probability of a boom is 10 percent while the probability of a recession is 25 percent.What is the standard deviation of a portfolio which is comprised of $4,500 of Stock S and $3,000 of Stock T?

• A)1.4 percent
• B)1.9 percent
• C)2.6 percent
• D)5.7 percent
• E)7.2 percent

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Definitions:

Relative Sales Value Method

A technique used to allocate joint costs based on the proportionate sales value of each product produced from a common process.

Joint Cost

The costs incurred in the process of producing two or more products simultaneously, where such costs cannot be separately identified with individual products.

By-Products

Secondary products that are generated alongside the main product during the manufacturing process.

Net Realisable Value

The estimated selling price of goods minus the costs of their completion and sale.