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

Question

Quizplus · Accepted Answer

The expected return is calculated by taking the average of the returns in each scenario since each scenario has an equal likelihood. Thus, $ \frac{-13 + 16 + 23}{3} = \frac{26}{3} = 8.67\% $.

What Is the Expected Return on a Portfolio That Will