Question
Will Power is again forecasting risk and return for 3 stocks, Peanut, Butter and Jelly. He predicts that there is a 40% chance that the
Will Power is again forecasting risk and return for 3 stocks, Peanut, Butter and Jelly. He predicts that there is a 40% chance that the economy performs poorly, and in that worst-case scenario, Peanut will earn a -10% whereas Butter will earn a 21% for the month and Jelly will earn a 3% return. He also predicts that there is a 60% chance that the economy will achieve great growth and in this best-case scenario, he expects that Peanut will earn a 28% return, Butter will earn 8% and Jelly will earn a 4% return.
Based on Wills estimation, calculate the risk and expected return for a $100,000 portfolio, in which $35,000 invested in Peanut, $45,000 invested in Butter and the rest of the investment invested in Jelly.
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