Consider the following information on three stocks in four possible future states of the economy: Rate of return if state occurs State of economy Probability of state of economy Stock A Stock B Stock C Boom 0.3 0.35 0.45 0.38 Good 0.3 0.15 0.20 0.12 Poor 0.3 0.05 –0.10 –0.05 Bust 0.1 0.00 –0.30 –0.10 a. Your portfolio is invested 30% in A, 50% in B, and 20% in C. What is the expected return of your portfolio?

Consider the following information on three stocks in four possible future states of the economy: Rate of return if state occurs State of economy Probability of state of economy Stock A Stock B Stock C Boom 0.3 0.35 0.45 0.38 Good 0.3 0.15 0.20 0.12 Poor 0.3 0.05 –0.10 –0.05 Bust 0.1 0.00 –0.30 –0.10 a. Your portfolio is invested 30% in A, 50% in B, and 20% in C. What is the expected return of your portfolio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 16P

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		Rate of return if state occurs
State of economy	Probability of state of economy	Stock A	Stock B	Stock C
Boom	0.3	0.35	0.45	0.38
Good	0.3	0.15	0.20	0.12
Poor	0.3	0.05	–0.10	–0.05
Bust	0.1	0.00	–0.30	–0.10