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1) (3 pts) A portfolios returns are forecasted to have the following distribution: Demand for the Companys Products Weak Av
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Answer #1

Probability of Weak Demand Occurring = 25%
Rate of Return during Weak Demand Occurring = -8%
Probability of Average Demand Occurring = 60%
Rate of Return during Average Demand Occurring = 9%
Probability of Strong Demand Occurring = 15%
Rate of Return during Strong Demand Occurring = 15%

Expected Return of Portfolio = Probability of Weak Demand Occurring * Rate of Return during Weak Demand Occurring + Probability of Average Demand Occurring * Rate of Return during Average Demand Occurring + Probability of Strong Demand Occurring * Rate of Return during Strong Demand Occurring
Expected Return of Portfolio = 25% * (-8%) + 60% * 9% + 15% * 15%
Expected Return of Portfolio = 5.65%

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