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Terrance Freeman
on Dec 09, 2024

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XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in 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 25%, 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) 9%
B) 8%
C) 7%
D) 6%
E) 5%

Portfolio Standard Deviation

A measure of the volatility of the returns on a portfolio, indicating the portfolio's overall risk level.

Countercyclical Stock

A type of stock whose performance is inversely related to the overall economic cycle, often performing better during economic downturns.

  • Comprehend the principle of portfolio standard deviation and its sensitivity to varying stock categories and their allocations.
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ANISHA BEHERADec 10, 2024
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