An analyst has identified three periods; boom, normal growth, and recession. The expected return of a stock fund in a boom, normal growth, and recession is 20%, 15%, and 10%. The expected return of the bond fund in a boom, normal growth, and recession is 16%, 12%, and 14%. The probability that the economy will experience a boom is 30%, 20% probability of normal growth, and 50% of a recession. Calculate the expected return of the portfolio, if 38% is invested in the stock fund and the remainder in the bond fund.

Answer rating: 100% (QA)

To calculate the expected return of the portfolio we need to consider the expected returns of ... View the full answer