Question

What is the expected return on a portfolio comprised of $9,750 of Stock X and $4,520 of Stock Y if the economy enjoys a boom period? State of Econom Probability of State of Economy Rate of Return if State Occurs Stock X Stock Y Boom .25 .108 .156Normal .65 .087 . 097Recession .10 .024 .067A. 11.93 percent B. 11.57 percent C. 12.78 percent D. 12.32 percent

Answer 1

Answer:

D. 12.32 percent

Explanation:

Calculation for the expected return on a portfolio

Expected return on a portfolio =[$9,750/($9,750 + 4,520)](.108) + [$4,520/($9,750 + 4,520)](.156)

Expected return on a portfolio =[$9,750/$14,270)](.108) + [$4,520/$14,270](.156)

Expected return on a portfolio =0.07379+0.04941

Expected return on a portfolio = .1232*100

Expected return on a portfolio =12.32%

Therefore the expected return on a portfolio will be 12.32%