What is the expected return on an equally weighted portfolio of these three stocks? (Hint: Equally means that each stock has the same weight. Given that there are only 3 stocks, each has a weight of 1/3) Enter the answer with 4 decimals (e. g. 0.1234).

9.52%

Explanation:

Calculation to determine the expected return on an equally weighted portfolio of these three stocks

Return of portfolio Boom = - 0.11 + 0.23 + 0.26 /3

Return of portfolio Boom= 0.38/3

Return of portfolio Boom=12.67%

ALTERNATIVE :

Weights= 1/3

Weight = 0.33333

(0.33333× -0.11)+ (0.33333 × 0.23)+( 0.33333 × 0.26)

= - 0.03667 + 0.07667 + 0.08667

= 12.67%

Return of portfolio Bust = 0.16 + 0.03 + (-0.08)

Return of portfolio Bust=0.11/3

Return of portfolio Bust = 3.67%

Alternative =( 0.33333 × 0.16) + (0.3333× 0.03) + (0.33333 × -0.08(

Alternative= 0.05333 + 0.00999 + (0.02667)

Alternative= 3.67%

Expected return of portfolio = (0.65 × 0.1267) + (0.35 × 0.0367)

Expected return of portfolio=0.082355 + 0.012845

Expected return of portfolio=0.0952*100

Expected return of portfolio = 9.52%

Therefore the expected return on an equally weighted portfolio of these three stocks will be 9.52%

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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