Stock a Is Expected to Return 14 Percent in a Normal

Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession.Stock B deals with inferior goods and has expected returns of 6 percent in a normal economy and 15 percent in a recession.The probability of a recession occurring is 25 percent with a zero probability of a boom.What is the standard deviation of a portfolio that is equally weighted between the two stocks?

A) 5) 63%
B) 6) 08%
C) 4) 29%
D) 5) 13%
E) 6) 36%

Correct Answer:

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