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You decide to invest in a portfolio consisting of 25 percent Stock A, 25 percent Stock...

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Finance

You decide to invest in a portfolio consisting of 25 percentStock A, 25 percent Stock B, and the remainder in Stock C. Based onthe following information, what is the expected return of yourportfolio? State of Economy Probability of State Return if StateOccurs of Economy Stock A Stock B Stock C Recession .16 - 16.4 % -2.7 % - 21.6 % Normal .55 12.6 % 7.3 % 15.9 % Boom .29 26.2 % 14.6% 30.5 %

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Stock A
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (A)^2* probability
Recession 0.16 -16.4 -2.624 -28.304 0.012817863
Normal 0.55 12.6 6.93 0.696 2.66429E-05
Boom 0.29 26.2 7.598 14.296 0.005926893
Expected return %= sum of weighted return = 11.9 Sum=Variance Stock A= 0.01877
Standard deviation of Stock A% =(Variance)^(1/2) 13.7
Stock B
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (B)^2* probability
Recession 0.16 -2.7 -0.432 -10.517 0.001769717
Normal 0.55 7.3 4.015 -0.517 1.47009E-05
Boom 0.29 14.6 4.234 6.783 0.001334264
Expected return %= sum of weighted return = 7.82 Sum=Variance Stock B= 0.00312
Standard deviation of Stock B% =(Variance)^(1/2) 5.58
Stock C
Scenario Probability Return% =rate of return% * probability Actual return -expected return(A)% (C)^2* probability
Recession 0.16 -21.6 -3.456 -35.734 0.0204307
Normal 0.55 15.9 8.745 1.766 0.000171532
Boom 0.29 30.5 8.845 16.366 0.007767533
Expected return %= sum of weighted return = 14.13 Sum=Variance Stock C= 0.02837
Standard deviation of Stock C% =(Variance)^(1/2) 16.84
Expected return%= Wt Stock A*Return Stock A+Wt Stock B*Return Stock B+Wt Stock C*Return Stock C
Expected return%= 0.25*11.9+0.25*7.82+0.5*14.13
Expected return%= 12

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You decide to invest in a portfolio consisting of 25 percentStock A, 25 percent Stock B, and the remainder in Stock C. Based onthe following information, what is the expected return of yourportfolio? State of Economy Probability of State Return if StateOccurs of Economy Stock A Stock B Stock C Recession .16 - 16.4 % -2.7 % - 21.6 % Normal .55 12.6 % 7.3 % 15.9 % Boom .29 26.2 % 14.6% 30.5 %

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