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The probability distribution for the returns on Grey stock is as follows:

The probability distribution for the returns on Grey stock is as follows:

         State of Nature    Probability                    Return

                   1                 .45                       6%

                   2                 .35                       12%

                   3                 .20                       21%                              

  Calculate the expected rate of return.

Solutions

Expert Solution

Expected return = Probabilties * returns

Expected return = 0.45*0.06 + 0.35*0.12 + 0.2*0.21

Expected return = 0.027 + 0.042 + 0.042

Expected return = 0.111 or 11.10%

jeff jeffy answered 2 years ago
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