The returns for Apples Inc. and Carrots Inc. next year will depend on the same states of nature, as below: 

State                   Probability                 Return on Apples inc            Return on Carrots inc 

Sunny                   0.2                                       0.3                                        0.1 

Moderate           0.4                                         0.2                                     0.25 

Snowy                  0.4                                        0.1                                     0.3. 

Imagine you wish to combine your holdings across Apples Inc and Carrots Inc. You have decided to put 60% of your wealth on Apples and the remainder on Carrots. The resulting portfolio will be labeled Portfolio P. What is the variance of portfolio (P)?

Answer rating: 100% (QA)

Here are the steps to solve this 1 We are given the returns and probabilities for Apples ... View the full answer