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  3. consider an economy with two types of firms, s and

Consider an economy with two types of firms, S and I. S firms all move...

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Question

Accounting

Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a

63%

probability that the firm will have a

9%

return and a

37%

probability that the firm will have a

11%

return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in:

a.

34

firms of type S?

b.

34

firms of type I?

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