What Is the Expected Return on a Portfolio Comprised of €3,000

question 80

Multiple Choice

What is the expected return on a portfolio comprised of €3,000 in share K and €5,000 in share L if the economy is normal?
$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$ Returns if
$\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$ State Occurs
$\begin{array}{|l|l|l|l|}\hline \text { State of Economy } & \text { Probability of State of Economy } & \text { ShareK } & \text { Share L } \\\hline \text { Boom } & 20 \% & 14 \% & 10 \% \\\hline \text { Normal } & 30 \% & 5 \% & 6 \% \\\hline\end{array}$

• A)3.75%
• B)5.25%
• C)5.63%
• D)5.88%
• E)6.80%

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Definitions:

Allowance Method

An accounting technique used to estimate uncollectible accounts receivable and record bad debts expense.

Percent of Sales Method

A financial forecasting technique that estimates certain balance sheet and income statement items as a fixed percentage of projected sales.

Uncollectible Expenses

Costs that a business incurs from credits extended to customers that are not expected to be paid back, often recognized as bad debt expense.

Credit Sales

Sales made by a business where the payment is deferred to a later date, typically recorded as accounts receivable until payment is received.