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Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.02 0.08...

Consider the following information:

State Probability Stock A Stock B Stock C

Boom 0.32 0.02 0.08 0.05

Bust 0.68 -0.12 0.18 0.07

What is the expected return of a portfolio that has invested $11,537 in Stock A, $1,428 in Stock B, and   $8,980 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals

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Answer #1

Probability (P) Stock A Return(Ra) Ra *P Stock B Return(Rb) Rb *P Stock C Return(Rc) Rc * P Boom Bust 0.32 0.68 2 -12 0.64 -8

So, portfolio return = -0.3878%

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