You are interested in investing and are considering a portfolio comprised of the following two stocks. Their estimated returns under varying market conditions are provided:
You are interested in investing and are considering a portfolio comprised of the following two stocks. Their estimated returns under varying market conditions are provided: (note: it is difficult to get this to format precisely, but the first number you see after the name of the economic scenario, such as "economy sluggish" is the probability of that scenario. Then the next number is A's expected to return in a sluggish economy, followed by B's expected to return in a sluggish economy. To clarify, the Probability of a sluggish, normal, or boom economy is .3, .4, and .3 respectively. The expected returns for A for sluggish, normal, and, boom are .16, .06, and -.02 respectively. Finally, the expected returns for B for sluggish, normal, and boom are -.05, .1, and .21 respectively. This basic table will be used in all sections of this problem, so the overall predicted returns for A and B will not change.)
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