(T/F) Every additional stock added to a portfolio reduces the portfolio\'s level

ID: 2754171 • Letter: #

Question

(T/F) Every additional stock added to a portfolio reduces the portfolio's level of risk by an equal

amount.

A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8%

if the economy moves into a recessionary period. The economists predict a 65% chance of a normal

economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the

stock?

A. 11.98%

B. 12.06%

C. 11.10%

D. 11.23%

What is the approximate variance of returns if over the past 3 years an investment returned 8%,

-12%, and 15%?

A. 31

B. 131

C. 182

D. 961

Ans : Expected return on the stock: (11*65%) + (19*25%) + (-8*10%)

= 7.15 + 4.75 - 0.8

= 11.1% i.e. Option C.

Appx Variance of returns = (11.1 - 8)^2 + (11.1+12)^2 + (11.1-15)^2

= 182 i.e. option C.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.