A Portfolio Is Expected to Return 18 Percent in a Booming

question 48

Multiple Choice

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

• A)8.40%
• B)6.83%
• C)7.15%
• D)6.05%
• E)2.81%

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Definitions:

Total Cost

The sum of all costs, fixed and variable, associated with the production and sale of a good or service.

Perfectly Competitive

A market structure where there are many buyers and sellers, all selling identical products, with no barriers to entry or exit.

Market Price

The current exchange rate for an asset or service on the market.

Total Revenue

The total amount of money a firm receives from sales of its products or services.