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:

Risk-free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government securities.

Lend

To provide money or resources to another party with the expectation of future repayment.

Borrow

The act of receiving something with the intent to return it, often referring to money in the context of loans where interest may be charged.