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Question 5 (1 point) What is the expected return of a portfolio that has 70% in Asset A and 30% in Asset B? Probability Asset A Asset B State of Rate of of State of Rate of Economy Economy Return Return Boom 0.3 0.13 0.08 Normal 0.5 0.05 0.06 Recession 0.2 -0.05 -0.01

Answer 1

Expected Return in Boom =70%*0.13+30%*0.08 =11.5%
Expected Return in Normal =70%*0.06+30%*0.05=5.70%
Expected Return in Recession =70%*-0.05+30%*-0.01=-3.80%

Expected Return of Portfolio =0.3*11.5%+0.5*5.70%+0.2*-3.80% =5.54%