Problem:
A portfolio is invested 40% in stock R, 35% in Stock S, and 25% in Stock T.
| State of |
Probability of |
Rate of Return if state occurs |
| Economy |
State of Economy |
Stock R |
Stock S |
Stock T |
| Boom |
0.25 |
0.3 |
0.4 |
0.25 |
| Good |
0.4 |
0.1 |
0.15 |
0.1 |
| Poor |
0.25 |
0 |
-0.05 |
-0.1 |
| Bust |
0.1 |
-0.25 |
-0.15 |
-0.2 |
What is the expected return of the portfolio? What is the standard deviation of the return?