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:

Average Inventory

An estimation of the amount of inventory a company typically holds over a specific period, calculated as the average of the beginning and ending inventory.

Net Income

The company's net income, calculated by deducting all costs, taxes, and losses from its total revenue.

Profit Margin

A financial metric showing the percentage of revenue that exceeds the costs of goods sold, indicating the profitability of a company.

Payout Ratio

The proportion of earnings paid out to shareholders as dividends, typically expressed as a percentage of the company's total earnings.