The investment department of Big Bucks Businesses (BBB) is examining several different strategies. The forecasting department has indicated that each economic state is equally likely to occur. The estimated return for each security under each state is below. Tarragon Inc. manufactures decorative bottles, and Vintner Corp. is a mining firm. The following table summarizes the data:
|
Economic State
|
Tarragon
|
Vintner
|
|
Recession
|
-11%
|
4%
|
|
Average
|
20%
|
8%
|
|
Boom
|
40%
|
6%
|
Sara believes that BBB should invest 80% in Tarragon and 20% in Vintner. What is the return and variance on this portfolio? Use the population variance for the securities.