A portfolio is expected to return 15 percent in a booming economy,12 percent in a normal economy,and lose 9 percent if the economy falls into a recession.The probability of a boom is 25 percent while the probability of a recession is 15 percent.What is the overall portfolio expected return?
A)5.42%
B)6.83%
C)9.60%
D)10.05%
E)10.81%

Question

Quizplus · Accepted Answer

E(r)= (.25 × .15)+ (.60 × .12)+ (.15 × -.09)= .0960,or 9.60%

A Portfolio Is Expected to Return 15 Percent in a Booming