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You decided to invest money into a portfolio of two stocks, Snapchat and Groupon. There are two possibilities for what you can earn on each
You decided to invest money into a portfolio of two stocks, Snapchat and Groupon. There are two possibilities for what you can earn on each of these two stocks next year, the so-called "thumbs up" state and the so-called "thumbs down" state. The details are in the table below:
Proportion of money invested into Snapchat stock = 70% | Proportion of money invested into Groupon stock = 30% | ||
State of the economy | Probability of the state of the economy | Snapchat stock's return in each state of the economy | Groupon stock's return in each state of the economy |
"Thumbs up" state | 40% | 45% | 12% |
"Thumbs down" state | 60% | 11% | 21% |
Calculate the expected return on your portfolio next year.
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