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(13-3) You want to assess the expected return and risk of your portfolio, which contains three stocks. You are basing your assessment on a simple
(13-3) You want to assess the expected return and risk of your portfolio, which contains three stocks. You are basing your assessment on a simple forward-looking model based on three states of the world. The weights in your portfolio are 25% in Stock A, 45% in Stock B and 30% in Stock C. Your assessment of the probable returns of these three stocks in the states of the world are given in the table below. Prob Stock B Stock C Stock A 0.03 oom 0.20 0.12 0.18 0.60 0.07 Normal 0.05 0.06 -0.11 0.02 Bust 0.20 -0.06 Calculate the expected return and standard deviation of your portfolio based on these assumptions
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