Asked by
Terrance Freeman
on Dec 09, 2024Verified
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.
Verified Answer
AB
Learning Objectives
- Comprehend the principle of portfolio standard deviation and its sensitivity to varying stock categories and their allocations.
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