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sweet-ann [11.9K]
3 years ago
13

You have been given this probability distribution for the holding period return for KMP Stock State of the Economy Boom Normal R

ecession
What is the expected holding period return for KMP stock?
Probability 30 .50 20 HPR 18% 12% 5%
a) 10.40%
b) 9.32%
c) 11.63%
d) 11.54%
e) 10.66%
f) 10.88%
Business
1 answer:
Hunter-Best [27]3 years ago
7 0

Answer: The answer is a

Explanation:

Using the formula

Expected Rate of Return = ∑(i =1 to n) Ri Pi

Where Ri = Return in scenario 1

Pi = Probability for the return in scenario 1

i = Number of scenario

n = Total number of probability and Return

P1=30

R1 = 18

P2 = 50

R2 =12

P3 = 20

R3 =-5

Expected Gain =(30 ×18) + (50 × 12) + ( 20 × -5)

= 540 + 600 + - 100

= 1,040

= 1,040 ÷ 100

= 10.4%

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