Stock A has the following returns for various states of the economy:

State of the Economy
Probability
Stock A's Return
Recession
9%
-72%
Below Average
16%
-15%
Average
51%
16%
Above Average
14%
35%
Boom
10%
85%

Stock A's expected return is
A) 9.9%.
B) 12.7%.
C) 16.5%.
D) 13.8%

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Stock A has the following returns for various states of the economy:

State of the Economy
Probability
Stock A's Return
Recession
9%
-72%
Below Average
16%
-15%
Average
51%
16%
Above Average
14%
35%
Boom
10%
85%

Stock A's expected return is
A) 9.9%.
B) 12.7%.
C) 16.5%.
D) 13.8%

Answer :

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andromache andromache · Answer 1 · 2025-03-23T11:05:12-04:00

Answer:

The correct answer is b.12.7%

Explanation:

Expected return: It is used to calculate the expected value of the formula

In this question, the formula should be used which is shown below:

Expected return = Return of portfolio × Probability of portfolio

So,

For Recession, the expected return would be equal to

= -72 × 9% = -6.48%

For below average, the expected return would be equal to

= -15 × 16% = -2.4%

For average, the expected return would be equal to

= 16 × 51% = 8.16%

For above average, the expected return would be equal to

= 35 × 14% = 4.9%

For boom, the expected return would be equal to

= 85 × 10% = 8.5%

Now, do the sum of all states of the economy, so that the solution can arrive.

So, the answer would be

= -6.48% + (-2.4%) +8.16% +4.9% + 8.5%

= 12.68% round off = 12.7%

Thus, the Stock A's expected return is 12.7%

And, the correct answer is b.12.7%

Stock A has the following returns for various states of the economy: State of the Economy Probability Stock A's Return Recession 9% -72% Below Average 16% -15% Average 51% 16% Above Average 14% 35% Boom 10% 85% Stock A's expected return is A) 9.9%. B) 12.7%. C) 16.5%. D) 13.8%

Answer :

Other Questions

Stock A has the following returns for various states of the economy:

State of the Economy
Probability
Stock A's Return
Recession
9%
-72%
Below Average
16%
-15%
Average
51%
16%
Above Average
14%
35%
Boom
10%
85%

Stock A's expected return is
A) 9.9%.
B) 12.7%.
C) 16.5%.
D) 13.8%