(Solved by Humans)-One of the major risks in the economy is the oil price. Many
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One of the major risks in the economy is the oil price. Many financial?assets are severely affected by the oil price. Consider a natural gas company and an automobile?company. The natural gas company will be hit by a low oil price because the demand for natural gas will decrease as oil becomes cheaper. But the automobile company will benefit from a low oil price as more people can afford the cost of driving a car. The probability of the oil price next year is given by the following table:
Oil price Probability drops 25% does not change 50% arises 25% Contingent on the change in the oil price next year, the annual returns to the companies are expected as follows:
If oil price Natural gas Automobile drops -8% 18% does not change 6% 4% arises 12% -10% You are planning to invest 70% of your investment in the natural gas company and the remaining in the automobile company. What is the variance of your portfolio? please show work :)
a. 3.00
b. 10.32
c. 16.08
d. 1.52
e. 5.88
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This question was answered on: 10 May, 2025
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