Returns and Variances [LO1]

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 .56 .13 .21 .39

Bust .44 .15 .05 -.06

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

Expected Return %

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

Variance