Question

Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .58 .08 .17 .37 Bust .42 .14 .06 −.04 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.)

Answer 1

Answer:

a) The expected return of equally weighed portfolio is 14.23%

b) The expected return of equally weighed portfolio is 16.45%, hence Variance = 1.596457%

Explanation:

See workings of a and b attached in a form of spreadsheet.