ABC Investment Corporation Is Considering a Portfolio with 30% Weighting

question 39

Multiple Choice

ABC Investment Corporation is considering a portfolio with 30% weighting in a cyclical stock and 70% weighting in a countercyclical stock. It is expected that there will be three economic states; Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 12%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, calculate the portfolio expected return.

• A) 1.63%
• B) 2.63%
• C) 3.63%
• D) 4.63%
• E) 5.63%