State of Economy |
Probability of State of Economy |
Rate of Return If State Occurs |
|
Stock A |
Stock B |
||
Recession |
.20 |
−.15 |
.20 |
Normal |
.50 |
.20 |
.30 |
Boom |
.30 |
.60 |
.40 |
Using the information above, suppose you have $20,000 total. If you put $15,000 in Stock A and the remainder in Stock B, and the economy exists in a normal state for one year, what will be the expected return and standard deviation of your portfolio?
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