Question
In: Finance
Dothan Inc.'s stock has a 25% chance of producing a 16% return, a 50% chance of...
Dothan Inc.'s stock has a 25% chance of producing a 16% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return? Do not round your intermediate calculations.
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Solutions
Expert Solution
What is the firm's expected rate of return?
Answer: C) 5.50%
Workings
Formula for calculating the firms expected rate of return is as follows;
Expected return = Total of (probability * return)
= (25% * 16%) + (50% * 12%) + (25% * -18%)
= 4% + 6% - 4.50%
= 5.50%
Note: data provided in the question
|
Chance (Probability) |
Rate of return |
|
25% |
16% |
|
50% |
12% |
|
25% |
-18% |
jeff jeffy answered 3 years agoRelated Solutions
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