The following table reports forecasted returns for the stock of two different companies under three possible states of the economy:
| State | Probability | Stock A | Stock B | Stock C |
| Expansion | 55% | 13.56% | 18.97% | 5.78% |
| Average | 45% | 8.11% | 5.97% | 3.27% |
What is the expected return on a portfolio that consists of 30% of funds allocated to Stock A, 40% allocated to Stock B, and the rest in Stock C?
Ans 9.98%
| State | Probability (i) | Stock A (ii) | Stock A Return (i)* (ii) | Stock B (iii) | Stock B Return (i)* (iii) | Stock C (iv) | Stock C Return (i)* (iv) |
| Expansion | 55.00% | 13.56% | 7.46% | 18.97% | 10.43% | 5.78% | 3.18% |
| Average | 45.00% | 8.11% | 3.65% | 5.97% | 2.69% | 3.27% | 1.47% |
| Total | 11.11% | Total | 13.12% | Total | 4.65% | ||
| Stock | Investment (i) | Return(ii) | Investment * Return (i)* (ii) | ||||
| A | 30.00% | 11.11% | 3.33% | ||||
| B | 40.00% | 13.12% | 5.25% | ||||
| C | 30.00% | 4.65% | 1.40% | ||||
| Total | 9.98% | ||||||
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