Compute the expected return for the following investment State of nature Probability Return Boom 25% 20% Average 60% 8% Recession 15% 0%

Compute the expected return for the following investment

State of nature Probability Return

Boom 25% 20%

Average 60% 8%

Recession 15% 0%

Expert Solution

Compute the expected return for the following investment

State of nature	Probability	Return	Probability X Return
Boom	25%	20%	5.00%	(25% X 20% =5%)
Average	60%	8%	4.80%	(60% X 8% = 4.80%)
Recession	15%	0%	0.00%	(15% X 0% = 0%)
Expected Investment Return			9.80%	(5% + 4.80%+0% = 9.80%)

(5% + 4.80%+0% = 9.80%)

Junaid answered 2 years ago

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