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(Solution document) Consider the following: Rate of Return if State Occurs State of the Econ. Probability of State of Econ. Stock A Stock B Stock C Boom .39 Bust .


Consider the following:

Rate of Return if State Occurs

State of the Econ.      Probability of State of Econ. Stock A Stock B Stock C  

Boom .56                             .13 .21 .39

Bust .44   .15 .05 -.06


A. What is the expected return on an equally weighted portfolio of these three stocks?


Expected return    15.27%?


B. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C?


Variance       11.45?


What am I missing to get to the correct number?

 







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