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The probability the economy will boom is 10 percent while the probability of a recession is...

The probability the economy will boom is 10 percent while the probability of a recession is 20 percent. Stock A is expected to return 15 percent in a boom, 9 percent in a normal economy, and lose 14 percent in a recession. Stock B should return 10 percent in a boom, 6 percent in a normal economy, and 2 percent in a recession. Stock C is expected to return 5 percent in a boom, 7 percent in a normal economy, and 8 percent in a recession. What is the standard deviation of a portfolio invested 20 percent in Stock A, 30 percent in Stock B, and 50 percent in Stock C?

Multiple Choice

  • .6 percent

  • .9 percent

  • 1.8 percent

  • 2.2 percent

  • 4.9 percent

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