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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. Boom Normal Bust Prob 0.20 0.60 0.20 Stock A 0.12 0.05 -0.06 Stock B 0.18 0.06 0.11 Stock C 0.03 0.07 0.02 Calculate the expected return and standard deviation of your portfolio based on these assumptions
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