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umka2103 [35]
3 years ago
12

What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal time

s, and will increase by 23% during boom times if each scenario has an equal likelihood of occurrence?
Business
1 answer:
Alja [10]3 years ago
5 0

Answer:

Expected return of the portfolio = 8.67 %

Explanation:

given data

recession = - 13%

normal times = 16%

boom times = 23%

to find out

expected return on a portfolio

solution

we know that here 3 scenario has equal chance of happen probability it means each event have chance or probability of occur = \frac{1}{3}

so here Expected return of portfolio will be

Expected return of portfolio = Sum of all 3 events expected return  ............1

we get here

Expected return of the portfolio = -0.13*\frac{1}{3} +0.16*\frac{1}{3}  +0.23*\frac{1}{3}

Expected return of the portfolio = 0.0866666

Expected return of the portfolio = 8.67 %

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