Question

You are given the following probability distribution of returns of two stocks A and B. If...

You are given the following probability distribution of returns of two stocks A and B. If you form a portfolio by investing $750,000 in stock A and $1,250,000 in Stock B, calculate the expected return of your portfolio.

State of Economy Probability of State Return of Stock A Return of Stock B
Recession 0.10 55% -20%
Slow Down 0.20 40% 10%
Normal Economy 0.45 10% 15%
Boom 0.25 -20% 40%

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