What Is the Expected Return on a Portfolio Comprised of $4,000

question 102

Multiple Choice

What is the expected return on a portfolio comprised of $4,000 in stock M and $6,000 in stock N if the economy enjoys a boom period?
$\begin{array}{llcc} \text { State of } & \text { Probability of } & \underline{\text { Returns if State Occurs }} \\\underline{ \text { Economy }} & \underline{\text { State of Economy }} & \underline{\text {StockM\quad Stock N}} \\ \text {Boom } & 10\% &18\% \quad \quad 10\%\\ \text { Normal} & 75\%& 7\%\quad \quad8\%\\\text { Recession }&15\%&-20\%\quad \quad6\%\\\end{array}$

• A)6.4%
• B)6.8%
• C)10.4%
• D)13.2%
• E)14.0%

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Definitions:

Transform Boundary

A type of plate boundary where two plates slide past each other horizontally.

South of Alaska

A geographic region located to the south of Alaska, characterized by a variety of landscapes including coastal areas, forests, and mountains.

Mid-Ocean Ridge

A submerged chain of mountains created by the movements of tectonic plates, where volcanic processes generate new sea floor.

Magnetic Stripes

Patterns of magnetic anomalies found on the ocean floor, parallel to mid-ocean ridges, that record reversals of the Earth's magnetic field.