If you invested in an equally-weighted portfolio of stocks A and B, your portfolio return would be ___________ if economic growth were moderate.
There are three stocks: A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year (each equally likely to occur); economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:
A. 3.0%
B. 14.5%
C. 15.5%
D. 16.0%
C. 15.5%
E(Rp) = 0.5(17%) + 0.5(15%) = 16%.
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