State of economy Probability of state of economy Rate of Return on stock if state occurs

Stock A Stock B

Boom 0.30 100% 20%

Normal 0.40 15% 15%

Recession 0.30 -70% 10%

If you have a portfolio comprises 50% of stock A and 50% on stock B what is the expected return on this portfolio;(2 Points)

15%

13 %

14.4%

12 %