Consider the following:
Rate of Return if State Occurs
State of the Econ. Probability of State of Econ. Stock A Stock B Stock C
Boom .56 .13 .21 .39
Bust .44 .15 .05 -.06
A. What is the expected return on an equally weighted portfolio of these three stocks?
Expected return 15.27%?
B. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C?
Variance 11.45?