Theta and vega to form an investment portfolio

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1. You're combining two stocks: Theta and Vega to form an investment portfolio. You decide to invest 60% of the portfolio in stock Theta, and 40% in stock Vega. The table below outlines the expected returns of each stock given 3 possible states of the economy. Given this information, what is your portfolio's expected return?

State of Economy

Probability of state

Returns on stock Theta

Return on stock Vega

Good

0.3

12%

-2%

Average

0.6

8%

2%

Poor

0.1

4%

6%

  • 9.9%
  • 8.8%
  • 4.4%
  • 5.8%
  • 2.2%

Reference no: EM133111229

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