- Use the attached examples and complete the answer for both using both examples.
- 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?
- 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?