You Have a Portfolio Which Is Comprised of 60% of Stock

question 24

Multiple Choice

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected rate of return on this portfolio?
$\begin{array}{lrrr}\text {State}&\text {Prob}&\text {A}&\text {B}\\\text { Boom } & .20 & 15 \% & 9\% \\\text { Normal } & .80 & 8 \% & 20\%\end{array}$

• A)12.76%
• B)12.88%
• C)13.44%
• D)13.56%
• E)13.85%

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Definitions:

Residual Interest

The interest remaining in a trust or estate once all prior obligations, claims, or interests have been satisfied.

Equity Instrument

Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Derivative Instrument

A financial contract whose value is derived from the value of an underlying asset, index, or rate.

Liabilities

Financial obligations of a business, including money owed to creditors or suppliers.