Question

Consider the following information:

State Probability Stock A Stock B Stock C

Boom 0.32 -0.05 0.08 -0.02

Bust 0.68 0.07 -0.12 0.22

What is the expected return of a portfolio that has invested $12,403 in Stock A, $15,943 in Stock B, and   $18,914 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).

Answer 1

Hello

YOUR REQUIRED ANSWER IS 4.67%

Weight Assessment:

Stock	Investment	Weights
A	$12,403.00	26.24%
B	$15,943.00	33.73%
C	$18,914.00	40.02%
Total	$47,260.00

Economy	A	Weight	W*p	B	Weight	W*p	O	Weight	W*p	Returns		Economy	Probability	Returns	P*R	(Return - Mean)^2 * P
Boom	-5.00%	26%	-1.31%	8.00%	34%	2.70%	-2.00%	40%	-0.80%	0.59%		Recession	32%	0.59%	0.188%	0.0005340
Normal	7.00%	26%	1.84%	-12.00%	34%	-4.05%	22.00%	40%	8.80%	6.59%		Growth	68%	6.59%	4.484%	0.0002513
												Mean	Mean			4.67%

Thanks!

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