You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?

A) 6.3%
B) 6.8%
C) 7.6%
D) 10.0%
E) 10.8%

Question

You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?

A) 6.3% 
B) 6.8% 
C) 7.6% 
D) 10.0% 
E) 10.8%

Quizplus · Accepted Answer

To calculate the overall portfolio expected return, we need to take a weighted average of the expected returns given the various states of the economy, where the weights are the probabilities of each state occurring.

Portfolio expected return = (0.1 x 3%) + (0.3 x 5%) + (0.2 x 7%) + (0.3 x 9%) + (0.1 x 12%)
= 0.3% + 1.5% + 1.4% + 2.7% + 1.2%
= 6.8%

Therefore, the correct answer is B.

You Own a Portfolio with the Following Expected Returns Given