You are expecting either a recession or steady growth next year. Recession has a 11% probability of happening. In steady growth, stock ABC returns 13.75% and stock XYZ returns 10.75%. In a recession, stock ABC returns -6.90% and stock XYZ returns -4.70%. You are going to put together a portfolio of these two stocks with positive portfolio weight in each and allocate 69% of the portfolio to ABC with the remainder to XYZ. What is the variance of the portfolio?
Variance is 0.00355
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