Returns and Standard Deviations Consider the following information:
State of Economy | Probability of State of Economy | Rate of Return if State Occurs | ||
Stock A | Stock B | Stock C | ||
Boom | .80 | .07 | .15 | .33 |
Bust | .20 | .13 | .03 | –.06 |
a. What is the expected return on an equally weighted portfolio of these three stocks?
b.What is the variance of a portfolio invested 20 percent each in A and B, and 60 percent in C?
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