You Own a Portfolio with the Following Expected Returns Given

question 94

Multiple Choice

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? $$\begin{array} { l c c } \text { State of Economy } & \underline { \text { Probability of State of Economy } } & \text { Rate of Return if State Occurs } \\\text { Boom } & 27 \% & 17 \% \\\text { Normal } & 70 \% & 8 \% \\\text { Recession } & 3 \% & - 11 \%\end{array}$$

• A)6.49 percent
• B)8.64 percent
• C)8.87 percent
• D)9.86 percent
• E)10.23 percent

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Definitions:

Binomial

Pertaining to a probability distribution or experiment where each trial has two possible outcomes.

Probability of Success

The likelihood or chance of an event happening that is considered a favorable outcome.

Normal Curve

A symmetric bell-shaped curve that represents the distribution of many types of data; most values remain near the mean and the frequencies decrease further from the mean.

Binomial Probability

The probability of obtaining a fixed number of successes in a set number of trials in an experiment with two possible outcomes.