Given the following information, what is the expected return on a portfolio that

Question

Given the following information, what is the expected return on a portfolio that is invested 30 percent in both Stocks A and C, and 40 percent in Stock B? (Hint: Two steps, percent of the portfolio and expected return calculations) A. 11.97 percent B. 12.94 percent C. 13.33 percent D. 13.84 percent E. 14.42 percent

State of Probability of State Rate of Return if State Occurs

Economy of Economy Stock A Stock B Stock C

Boom .05 7.8% 23.6% 18.4%

Normal .85 9.1% 15.4% 13.7%

Recession .10 11.8% -12.3% 6.4%

Explanation / Answer

av ret of A = 9.305

av ret of B = 13.04

av ret of C = 13.205

ret = weight * individual ret = 11.97%

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