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There is a 25% probability of an average economy and a 75% probability of an above...

There is a 25% probability of an average economy and a 75% probability of an above average economy. You invest 10% of your money in Stock S and 90% of your money in Stock T. In an average economy the expected returns for Stock S and Stock T are 6% and 9%, respectively. In an above average economy the the expected returns for Stock S and T are 15% and 35%, respectively. What is the expected return for this two stock portfolio?

Portfolio Expected Return (4 decimals):

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Answer #1

The Expected Return = Probability of Average economy *(Investment in stock S * Return in stock S+ Investment in Stock T* Return in Stock T) + Probability of Above average economy *(Investment in stock S * Return in stock S+ Investment in Stock T* Return in Stock T) =25%*(10%*6%+90%*9%) + 75%*(10%*15%+90%*35%) = 26.9250%

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