Q#3. Expected returns and three states of the economy are below for White and Black .
|
Asset
|
PV per Share
|
Recession
|
Normal
|
Expansion
|
|
White Corp
|
$5.00
|
-20%
|
18%
|
50%
|
|
Black Corp
|
$12.50
|
-15%
|
20%
|
10%
|
The probabilities are:
|
State
|
Probability
|
|
Recession
|
0.2
|
|
Normal
|
0.5
|
|
Expansion
|
0.3
|
A). Calculate the E(R) and standard deviation for each stock
B). Calculate portfolio weights for 200 shares of White and 80 shares of Black.
C). What is the E (R) for this portfolio.