What is the expected return on a portfolio which is invested 20% in stock A, 50%

Question

What is the expected return on a portfolio which is invested 20% in stock A, 50% ins stock B and 30% in stock C

Occurs             State of Economy              Probability of State                       Returns if State

                                                                                                                         Stock A    Stock B     Stock C

                         Boom                                   20%                                               18%         9%              6%

                          Normal                                70%                                               11%         7%              9%

                         Recession                            10%                                                -10%       4%              13%

Choices

7.40%

8.25%

8.33%

9.45%

9.50%

Please show work.......I come up with none of these answers.    

Explanation / Answer

Easy Stock B should be = (.2x.09)+(.7x.07)+(.1x.04)= 7.1%

and the expect RP = (.2x.103)+(.5x.071)+(.3x.088)

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.