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You decide to invest in a portfolio consisting of 25 percent Stock A, 25 percent Stock...

You decide to invest in a portfolio consisting of 25 percent Stock A, 25 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession .21 - 18.0 % - 3.5 % - 22.4 % Normal .49 11.0 % 8.1 % 16.7 % Boom .30 27.8 % 15.4 % 31.3 %

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Expert Solution

Solution :

The expected return of the portfolio = 10.8855 %

= 10.89 % ( when rounded off to two decimal places )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 2 years ago
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