Question 13.3: Suppose we have the following projections for three stocks: ...
Suppose we have the following projections for three stocks:
State of Economy | Probability of State of Economy | Returns If State Occurs | ||
Stock A | Stock B | Stock C | ||
Boom | .40 | 10% | 15% | 20% |
Bust | .60 | 8 | 4 | 0 |
We want to calculate portfolio expected returns in two cases. First, what would be the expected return on a portfolio with equal amounts invested in each of the three stocks? Second, what would be the expected return if half of the portfolio were in A, with the remainder equally divided between B and C?
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