What is the expected return on a portfolio that will decline in value by 13% in a recession,will increase by 16% in normal times,and will increase by 23% during boom times if each scenario has equal likelihood?
A) 8.67%
B) 13.00%
C) 13.43%
D) 17.33%

Question

Quizplus · Accepted Answer

The expected return is calculated by averaging the returns of each scenario, weighted by their probabilities. Since each scenario has an equal likelihood (1/3), the expected return is: (-13% + 16% + 23%) / 3 = 8.67%.

What Is the Expected Return on a Portfolio That Will