Complete the following problems. For assistance, you may want to refer to the attached example:

  1. Use the attached examples and complete the answer for both using both examples.
  2. You are considering buying stock A, which is a large firm with a steady business. If the economy grows rapidly, you may earn 12% on your investment. A declining economy will likely result in a 5% loss. Slow growth will return 5%.

    If the probability is 15% for rapid growth, 20 % for a declining economy, and 65% for slow growth, what is the expected return of the investment?

  3. You are considering investing in three stocks with the following expected returns:
    • Stock A     2%
    • Stock B     10%
    • Stock C     15%

What is the expected return on the portfolio if an equal amount is invested in each stock? What would the expected return be if 50% of your funds are invested in stock A and the remaining funds divided evenly between stocks B and C?

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