What is the expected return on a portfolio which is invested 20% in stock A,50% in stock B,and 30% in stock C?
A)7.40%
B)8.25%
C)8.33%
D)9.45%
E)9.50%

Question

What is the expected return on a portfolio which is invested 20% in stock A,50% in stock B,and 30% in stock C? 
A)7.40% 
B)8.25% 
C)8.33% 
D)9.45% 
E)9.50%

Quizplus · Accepted Answer

E(r)_Boom = (.20 F1F1F1S1F1F1F10 .18)+ (.50 F1F1F1S1F1F1F10 .09)+ (.30 F1F1F1S1F1F1F10 .06)= .036 + .045 + .018 = .099E(r)_Normal = (.20 F1F1F1S1F1F1F10 .11)+ (.50 F1F1F1S1F1F1F10 .07)+ (.30 F1F1F1S1F1F1F10 .09)= .022 + .035 + .027 = .084E(r)_Bust = (.20 F1F1F1S1F1F1F10 -.10)+ (.50 F1F1F1S1F1F1F10 .04)+ (.30 F1F1F1S1F1F1F10 .13)= -.020 + .020 + .039 = .039E(r)_Portfolio = (.20 F1F1F1S1F1F1F10 .099)+ (.70 F1F1F1S1F1F1F10 .084)+ (.10 F1F1F1S1F1F1F10 .039)= .02376 + .0588 + .0039 = .0825 = 8.25%

What Is the Expected Return on a Portfolio Which Is