Solution: | ||
Expected return 10.80 % | ||
Working Notes: | ||
Expected return of portfolio(Er) | ||
= Sum of ((prob of each state) x (Return of portfolio at each state)) | ||
=0.10 x (-.15) + 0.60 x (.09) + 0.30 x (0.23) | ||
=0.108 | ||
=10.80% | ||
Notes: | Expected return of portfolio is the sum of product of probability of each sate of economy and corresponding returns of each state of economy. | |
Expected return of portfolio shows the overall return from the portfolio by considering the effect of all the state of economy. | ||
Please feel free to ask if anything about above solution in comment section of the question. |
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