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Use the following information on states of the economy and stock returns to calculate the expected...

Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  State of   Economy Probability of
State of Economy		 Security Return
If State Occurs
  Recession 0.4 -11 %
  Normal 0.2 16
  Boom ? 23

Solutions

Expert Solution

Probability of boom economy= 1 – (0.4 + 0.2)

                                                         = 1 – 0.6

                                                         = 0.4

Expected return= 0.4*-11% + 0.2*16% + 0.4*23%

                               = -4.40% + 3.20% + 9.20%

                               = 8%.

In case of any query, kindly comment on the solution.

jeff jeffy answered 1 month ago
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