Question

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Calculate the expected return based on the information in the table below State of economy Probability...

  1. Calculate the expected return based on the information in the table below

State of economy

Probability of state of economy

Rate of return if state occurs

Recession

.30

-.07

Normal

.60

.13

Boom

.10

.23

Solutions

Expert Solution

Expected return = (Probability of Recession * Returns at Recession) + (Probability of Normal * Returns at Normal) + (Probability of Boom * Returns at Boom)

Expected return = [0.30 * (-0.07)] + (0.60 * 0.13) + (0.10 * 0.23)

Expected return = 0.08 or 8%

jeff jeffy answered 2 years ago
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