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Suppose you observe the following situation: State of the economy Probability of state of economy Share ABC rate of return if state occurs Share XYZ
Suppose you observe the following situation:
State of the economy | Probability of state of economy | Share ABC rate of return if state occurs | Share XYZ rate of return if state occurs |
Recession | 0.20 | -15% | 25% |
Normal | 0.50 | 10% | 20% |
Boom | 0.30 | 50% | 10% |
Suppose you have $30,000 in total. If you invest $15,000 in Share ABC and the remainder in Share XYZ, what will the expected return on your portfolio be?
a. | The expected return in your portfolio is 17.5%. | |
b. | The expected return in your portfolio is 20%. | |
c. | The expected return in your portfolio is 1.35%. | |
d. | The expected return in your portfolio is 12%. |
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