An investment ﬁrm is considering a portfolio with equal weighting in a cyclical stock and a countercyclical stock. It is expected that there will be three economic states; Good, Average and
Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of
12%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is
Expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively.
Given this information, calculate portfolio standard deviation.
A) 7.33%
B) 6.33%
C) 5.33%
D) 4.33%
E) 3.33%

Question

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The Answer of An investment ﬁrm is considering a portfolio with equal weighting in a cyclical stock and a countercyclical stock. It is expected that there will be three economic states; Good, Average and
Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of
12%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is
Expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively.
Given this information, calculate portfolio standard deviation.
A) 7.33%
B) 6.33%
C) 5.33%
D) 4.33%
E) 3.33%

An Investment ﬁRm Is Considering a Portfolio with Equal Weighting