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Suppose Shen owns a two - stock portfolio that invests in Celestial Crane Cosmetics Company ( CCC ) and Lumbering Ox Truckmakers ( LOT )
Suppose Shen owns a twostock portfolio that invests in Celestial Crane Cosmetics Company CCC and Lumbering Ox Truckmakers LOT Threequarters of Shens portfolio value consists of Celestial Crane Cosmeticss shares, and the remaining balance consists of Lumbering Ox Truckmakerss 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
Expected Returns
Occurrence
CCC
LOT
Strong
Normal
Weak
Calculate the expected returns for the individual stocks in Shens 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 Shens portfolio over the next year is
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