1. A portfolio’s returns are forecasted to have the following distribution: Dema

Question

1. A portfolio’s returns are forecasted to have the following distribution:

Demand for the         Prob of Demand occurring

companys products                                                     Rate of return if this demand occurs

Weak                                      20%                            -12%                                                 

Average                                  50%                            11%

Strong                                     30%                            17%

Calculate the expected return of the portfolio.

Explanation / Answer

Expected return=20%*(-12%)+50%*11%+30%*17%=8.20%

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