(Answered)-One of the major risks in the economy is the oil price. Many - (2025 Updated Original AI-Free Solution

Question

1. 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