An investor gathers the following information about two stocks:
Scenaril 1 | Scenaril 2 | Scenaril 3 | |
Probability | 0.5 | 0.3 | 0.2 |
Rate of return on: | |||
Security 1 | 25% | 10% | -25% |
Security 2 | 1% | -5% | 35% |
If the investor plans to invest $60000 in Security 1 and $40000 in Security 2, the expected return on the two-asset portfolio is( )。
E(R1 )=0.5×25+0.3×10+0.2×(–25)=10.5%.
E(R2 )=0.5×1+0.3×(–5)+0.2×35=6.0%.
E(Rp )=w1R1+ w2R2 =0.6×10.5+0.4×6.0=8.7%.