a. What is the expected return on an equally weighted portfolio of these three s

Question

a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return=        %

b. What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.)

Variance =

Rate of return if state occurs state of economoy probability of economy stock a stock B stock C boom .60 .15 .23 .42 bust .40 .18 .08 -.09

Explanation / Answer

a.expected return on an equally weighted portfolio:

Expected return in Stock A=0.6*0.15+0.4*0.18=0.162=16.2%

Expected return in Stock B=0.6*0.23+0.4*0.08=0.17=17%

Expected return in Stock C=0.6*0.42+0.4*(-0.09=)0.216=21.6%

expected return on an equally weighted portfolio=16.2%/3+17%/3+21.6%/3=18.27%

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