You have a portfolio which is comprised of 70 percent of stock A and 30 percent

of stock B. What is the expected return on this portfolio?

State of the Economy Probability E(R) A E(R) B

Weight 70 % 30 %

Boom 0.2 20 % 14 %

Normal 0.6 12 % 8 %

Recession 0.2 -8 % 5 %

A) 11.79 percent

B) 9.30 percent

C) 9.58 percent

D) 12.40 percent

E) 10.03 percent