In: Finance
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.
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%