What is the expected rate of return of this portfolio with Stocks, A, B, and C?

Question

What is the expected rate of return of this portfolio with Stocks, A, B, and C?

Question 46.46. Scenario Probability Stock A Returns Stock B Returns Stock C Returns Stock A Weight Stock B Weight Stock C Weight Booming Economy 0.15 18% 14% 10% 0.2000 0.5000 0.3000 Normal Economy 0.75 12% 8% 11% 0.2000 0.5000 0.3000 Recession 0.10 -11% 2% 14% 0.2000 0.5000 0.3000

What is the expected rate of return of this portfolio with Stocks, A, B, and C?

(Points : 5)        0.07%
       10.02%
       9.62%
       2.6%

Explanation / Answer

Exp Return of Portfolio= weighted average return of individual securities = [0.18*0.15*0.20+0.12*0.75*0.20-0.11*0.10*0.20]+[0.1480.15*0.50+0.08*0.75*0.50+0.02*0.10*0.50]+[0.10*0.15*0.30+0.11*0.75*0.30+0.14*0.10*0.30] = 0.0962 = 9.62

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