Refer to the following information: --------------------------------------------

Question

Refer to the following information:

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Probability A B C

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0.4 10% 18% 8%

0.6 22% 14% 30%

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We will invest 30% of your initial investment in Stock A, 30% in Stock B and 40% in Stock C. 27. The expected rate of return for the portfolio is:

a. 17.2%. b. 15.6%. c. 21.2%. d. 18.32%. 28.

Explanation / Answer

Expected return for A=Respective returns*Respective probabilities

=(0.4*10)+(0.6*22)=17.2%

Expected return for B=(0.4*18)+(0.6*14)=15.6%

Expected return for C=(0.4*8)+(0.6*30)=21.2%

Hence Expected return for portfolio=(17.2*0.3)+(15.6*0.3)+(21.2*0.4)
=18.32%(D)

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