What Is the Expected Return on a Portfolio That Is

question 44

Multiple Choice

What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? $$\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\\text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock M } & \text { Stock N }\end{array}\\\text { Boom } & .13& \begin{array}{ll}.18 & \quad \quad -.14\end{array} \\\text { Normal } & .82 & \begin{array}{ll}.06 & \quad \quad.06\end{array} \\\text { Recession } & .05 &\begin{array}{ll} -.14 & \quad \quad .18\end{array}\end{array}$$

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Definitions:

DSM-IV

The Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition, is a manual published by the American Psychiatric Association outlining criteria for the classification and diagnosis of mental disorders.

Mental Disorders

A rephrased definition might be: A wide range of conditions that affect mood, thinking, and behavior, potentially causing significant distress or impairment in daily functioning.

Mental Illness

A broad range of conditions affecting mood, thinking, and behavior, often diagnosed through clinical assessment.

Insurance Companies

Organizations that provide risk management for clients through the mechanism of compensation in the event of specific losses, damage, illness, or death in exchange for premium payments.