1. Consider the following information: Rate of return if state occurs

State of economy Probability of state of economy Stock A Stock B Stock C

Boom 0.68 0.21 0.15 0.27

Bust 0.32 0.07 0.19 0.03

1. What is the expected return on an equally weighted portfolio of these three stocks?

   1. (A) 17.37%

   2. (B) 19.87%

   3. (C) 29.40%

   4. (D) 31.27%

   5. (E) 11.64%

2. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C?

   1. (A) 0.005853

   2. (B) 0.011353

   3. (C) 0.009353

   4. (D) 0.013553

   5. (E) 0.013853