Question: Based on the following information, what is the expected return? State of Probability of State Rate of Return if Economy of Economy State Occurs Recession

Based on the following information, what is the expected return?

State of	Probability of State	Rate of Return if
Economy	of Economy	State Occurs
Recession	.31	?	9.90%
Normal	.38		11.40%
Boom	.31		21.40%

7.63%

14.04%

10.97%

7.77%

7.90%

You decide to invest in a portfolio consisting of 20 percent Stock X, 41 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio?

State of Economy	Probability of State		Return if State Occurs
	of Economy		Return if State Occurs
	of Economy		Stock X		Stock Y		Stock Z
Normal		.79		9.50%		2.90%		11.90%
Boom		.21		16.80%		24.80%		16.30%

2.45%

6.19%

7.22%

1.84%

4.95%

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