Reference no: EM132044477

An investor is considering purchasing two stocks for a portfolio. Stock A will comprise of 40% of the portfolio and Stock B 60%. It is expected that three economic states may occur, with a 40% probability of a boom economy, 50% probability of an average economy and a 10% probability of a bust economy. If a boom economy transpires, stock A will yield an 11% return and stock B 15%. An average economy will see a 7% and 11% returns for stocks A and B respectively. In a bust economy, stock A will have return of -20% and stock B -5%. Given the above information, calculate the portfolio standard deviation.