Question: QUESTION 4 (20 marks) a) What is the standard deviation of the returns on a stock given the following information? State of Economy Boom Normal

QUESTION 4 (20 marks) a) What is the standard deviation of

QUESTION 4 (20 marks) a) What is the standard deviation of the returns on a stock given the following information? State of Economy Boom Normal Recession Probability of State of Economy 18% 76% 6% Rate of Return if State Occurs 19% 12% -15% (10 marks) b) A portfolio beta is a weighted average of the betas of the individual securities which comprise the portfolio. However, the standard deviation is not a weighted average of the standard deviations of the individual securities which comprise the portfolio. Explain why. (10 marks)

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