Question

You decide to invest in a portfolio consisting of 40 percent Stock A, 30 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio?

State of Economy	Probability of State			Return if State Occurs
	of Economy			Stock A			Stock B			Stock C
Recession		.26		-	14.6	%	-	1.8	%	-	20.7	%
Normal		.46			10.8	%		6.4	%		15.0	%
Boom		.28			24.4	%		13.7	%		29.6	%

• 8.04%

• 8.40%

• 10.36%

• 8.77%

• 9.50%

Answer 1