Assume that there are three stocks, A, B, and C, and that you can either invest in these stocks or short sell them. There are also three possible states of nature for economic growth in the upcoming year: strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:
State of Nature
Stock Strong Growth Moderate Growth Weak Growth
A 37 % 14.00 % - 8 %
B 31 % 12.00 % - 4 %
C 33 % 22.00 % - 6 %
If you invested in an equally weighted portfolio of stocks A and C, what is your portfolio return if economic growth is moderate?
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