Answer:
e. 11.86 percent
Explanation:
Expected return = Portfolio Invested * Return of stock
Expected return for Normal = [(40%*14.3%) + (35%*16.7%) + (25%*18.2%)] = 0.16115
Expected return for Recession = [(40%*-9,8%) + (35%*5.4%) + (25%*-26.9%)] = -0.0876
Expected return of Portfolio = [Probability * Expected Return]
Expected return of Portfolio = [(0.65*0.16115) + (0.35*-0.0876)
Expected return of Portfolio = 0.074105
Expected return of Portfolio = 7.41%
Variance = [Probability * (Expected return - Expected re*(Return of Portfolio)^2]
Variance = [0.65*(0.16115-0.074105)^2 + [(0.35*(-0.0876*0.074105)^2]
Variance = 0.0140712
Standard deviation = [tex]\sqrt{Variance }[/tex]
Standard deviation = [tex]\sqrt{0.0140712}[/tex]
Standard deviation = 0.118622089
Standard deviation = 11.86%