Expected rate of return
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RETURNS
State of Economy Probability of State Stock A Stock B Stock C
Boom .10 22% 18% 5%
Normal .85 14% 13% 11%
Recession .05 -28% 4% 17%
5. Phil has a portfolio comprised of 60 percent stock A, 5 percent stock B, and 35 percent stock C. What is his expected rate of return if the economy is in a boom period?
a. 15.74 percent
b. 15.80 percent
c. 15.85 percent
d. 15.92 percent
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Solution Summary
The solution explains how to calculate the expected rate of return.
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Expected rate of return on a portfolio = Sum(Proportion X return)
Under the boom ...
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