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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 60% probability that the firm will have a 15%
return and a 40% probability that the firm will have a -10% return. What is the volatility (standard
deviation) of a portfolio that consists of an equal investment in 20
(a) type S firms?
(b) type I firms?

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