What Is the Expected Return on a Portfolio That Is

Multiple Choice

What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? $$\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\\text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock M } & \text { Stock N }\end{array}\\\text { Boom } & .13& \begin{array}{ll}.18 & \quad \quad -.14\end{array} \\\text { Normal } & .82 & \begin{array}{ll}.06 & \quad \quad.06\end{array} \\\text { Recession } & .05 &\begin{array}{ll} -.14 & \quad \quad .18\end{array}\end{array}$$

A) 5.28 percent
B) 5.87 percent
C) 6.00 percent
D) 6.32 percent
E) 6.40 percent