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problem: 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 percent probability that the firms will have a 15% return and a 40 percent probability that the firms will have a – ten percent return. Determine 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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