Question
The are two expected states of the economy. The probability of a normal economy is 70 percent and the probability of a recession of 30
The are two expected states of the economy. The probability of a normal economy is 70 percent and the probability of a recession of 30 percent. If the economy is normal, security A is expected to earn 20 percent and Security B is expected to earn 6 percent. If the economy goes into a recession, Security A is expected to earn 4 percent and Security B is expected to earn 24 percent. What is the expected return on a portfolio that is invested 60 percent in A and 40 percent in B?
A) 10.89 percent
B) 11.07 percent
C) 13.68 percent
D) 14.28 percent
E) 14.79 percent
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