A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?
A)8.40%
B)6.83%
C)7.15%
D)6.05%
E)2.81%

Question

Quizplus · Accepted Answer

E(r)= 0.03(0.18)+ 0.72(0.13)+ 0.25(-0.11)= 0.0715,or 7.15 %

A Portfolio Is Expected to Return 18 Percent in a Booming