Question
a. Consider the following information: State Probability Stock A Stock B Stock C Boom 0.65 0.05 -0.01 0.11 Bust 0.35 0.07 0.06 0.05 What is
a. Consider the following information:
State Probability Stock A Stock B Stock C
Boom 0.65 0.05 -0.01 0.11
Bust 0.35 0.07 0.06 0.05
What is the expected return on an equally weighted portfolio of these three stocks? (Hint: Equally means that each stock has the same weight. Given that there are only 3 stocks, each has a weight of 1/3) Enter the answer with 4 decimals (e.g. 0.1234).
b. A stock has a beta of 0.91, the expected return on the market is 0.07, and the risk-free rate is 0.02. What must the expected return on this stock be? Enter the answer with 4 decimals (e.g. 0.1234).
c. You own a portfolio that has $6,706 invested in Stock A and $1,494 invested in Stock B. If the expected returns on these stocks are 0.02 and 0.23, respectively, what is the expected return on the portfolio?
Enter the answer with 4 decimals (e.g. 0.1234).
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