Consider the following information: State ofEconomy Probability of State of Economy Rate of Return if State OccursStock A Stock B Stock CBoom   0.60     0.08     0.16     0.34  Bust   0.40     0.18     0.09     −0.06   a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return            % b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.) Variance

a. To calculate the expected return on an equally weighted portfolio of these three stocks, we first need to calculate the expected return for each stock. The expected return for a stock is calculated by multiplying the probability of each state of the economy by the rate of return if that state occurs, and then summing these products.

For Stock A: Expected return = (0.60 * 0.08) + (0.40 * 0.18) = 0.048 + 0.072 = 0.12 or 12%

For Stock B: Expected return = (0.60 * 0.16) + (0.40 * 0.09) = 0.096 + 0.036 = 0.132 or 13.2%

For Stock C: Expected return = (0.60 * 0.34) + (0.40 * -0.06) = 0.204 - 0.024 = 0.18 or 18%

Since the portfolio is equally weighted, we average the expected returns: Expected return of portfolio = (12% + 13.2% + 18%) / 3 = 14.4%

b. To calculate the variance of a portfolio, we need to know the weights of the stocks in the portfolio, the variances of the returns of each stock, and the correlations between the returns of each pair of stocks. However, the information provided does not include

a. The expected return on an equally weighted portfolio of these three stocks can be calculated by first finding the expected return of each stock and then taking the average of those returns.

The expected return of a stock is calculated by multiplying the probability of each state of the economy by the rate of return if that state occurs, and then summing these products.

For Stock A: Expected Return = (0.60 * 0.08) + (0.40 * 0.18) = 0.12

For Stock B: Expected Return = (0.60 * 0.16) + (0.40 * 0.09) = 0.132

For Stock C: Expected Return = (0.60 * 0.34) + (0.40 * -0.06) = 0.168

The expected return on an equally weighted portfolio of these three stocks is then the average of these expected returns:

Expected Return = (0.12 + 0.132 + 0.168) / 3 = 0.14 or 14%

b. The variance of a portfolio is calculated by finding the weighted average of the variances of the individual stocks, plus the weighted average of the covariances of each pair of stocks.

However, without the individual variances or covariances of the stocks, we cannot calculate the variance of the portfolio.