Problem #1

Portfolio Expected Return.  You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B.  If the expected returns on these stocks are 10 percent and 16 percent, respectively, what is expected return on the portfolio?

Problem #2

Calculating Expected Return.  Based on the following information, calculate the expected return.

Stare of Economy      Probability of State of Economy         Rate of Return if State Occurs 

Recession                                        .25                                                  -.09

Normal                                            .45                                                   .11

Boom                                              .30                                                   .30

Problem #3

Returns and Standard Deviations.  Consider the following information:

State of         Probability of                                 Rate of Return if Occurs

Economy      State of Economy                 Stock A          Stock B          Stock C

Boom                     .15                                    .35                 .45                  .33

Good                      .45                                    .12                 .10                   .17

Poor                        .35                                    .01                 .02                  -.05

Bust                        .05                                  -.11                 -.25                 -.09

1. Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? 
2. What is the variance of this portfolio? The standard deviation?