Question
Juan owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and Lumbering Ox Truckmakers (LOT). Three-quarters of Juans portfolio value consists of
Juan owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and Lumbering Ox Truckmakers (LOT). Three-quarters of Juans portfolio value consists of CCCs shares, and the balance consists of LOTs shares.
Each stocks expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table:
Market Condition | Probability of Occurrence | Celestial Crane Cosmetics | Lumbering Ox Truckmakers |
---|---|---|---|
Strong | 0.20 | 32.5% | 45.5% |
Normal | 0.35 | 19.5% | 26% |
Weak | 0.45 | -26% | -32.5% |
Calculate expected returns for the individual stocks in Juans portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions next year.
The expected rate of return on Celestial Crane Cosmeticss stock over the next year is . | |
The expected rate of return on Lumbering Ox Truckmakerss stock over the next year is . | |
The expected rate of return on Juans portfolio over the next year is . |
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