Question

You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?

A. 6.3%; B.6.8% ; C. 7.6% ; D. 10.0% ; E. 10.8%

State of Economy Boom Normal Recession Probability of State of Economy 15% 60% 25% Rate of Return if State Occurs 18% 11% -10

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Answer #1

Return (r) 18% 11% -10% Probability [(P(r)] 0.15 0.60 0.25 Expecte return [rxP(r)] 2.7% 6.6% -2.5% Expected return 6.8%

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