Consider the following information: State of Economy Probability of State of Economy Rate of Return If State Occurs Stock A Stock B Stock C Boom .75 .06 .15 .25 Bust .25 .11 ?.04 ?.08
a. What is the expected return on an equally weighted portfolio of these three stocks?
b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C?