Question

Derive the standard deviation of the returns on a portfolio that is invested in stocks x,...

Derive the standard deviation of the returns on a portfolio that is invested in stocks x, y, and z , where twenty percent of the portfolio is invested in stock x and 35 percent is invested in Stock z.

State of

Economy

Probability of

State of Economy

Rate of Return

if State Occurs

Stock x

Stock y

Stock z

Boom

.04

.17

.09

.09

Normal

.81

.08

.06

.08

Recession

.15

.24

.02

.13

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