A portfolio consists of $12,000 of stock K and $23,000 of stock L.Stock K will return 14 percent in a booming economy and 5 percent in a normal economy.Stock L will return 10 percent in a booming economy and 6 percent in a normal economy.The probability of the economy booming is 22 percent.What is the expected rate of return on the portfolio if the economy is normal?
A)5.59%
B)5.62%
C)5.66%
D)5.71%
E)5.74%

Question

Quizplus · Accepted Answer

Portfolio value = $12,000 + 23,000 = $35,000Expected portfolio return_Normal = ($12,000/$35,000 × .05)+ ($23,000/$35,000 × .06)= .0566,or 5.66%

A Portfolio Consists of $12,000 of Stock K and $23,000