Compute the weights in a portfolio consisting of two kinds of stock if the expected return on the portfolio is to be E(K_V ) = 20\%, given the following information on the returns on stock 1 and 2:
Scenario | Probability | Return K_1 | Return K_2 |
ω_1(recession) | 0.1 | −10% | 10% |
ω_2(recession) | 0.5 | 0% | 20% |
ω_3 (boom) | 0.4 | 20% | 30% |