Answer:
The correct answer is b.12.7%
Explanation:
Expected return: It is used to calculate the expected value of the formula
In this question, the formula should be used which is shown below:
Expected return = Return of portfolio × Probability of portfolio
So,
For Recession, the expected return would be equal to
= -72 × 9% = -6.48%
For below average, the expected return would be equal to
= -15 × 16% = -2.4%
For average, the expected return would be equal to
= 16 × 51% = 8.16%
For above average, the expected return would be equal to
= 35 × 14% = 4.9%
For boom, the expected return would be equal to
= 85 × 10% = 8.5%
Now, do the sum of all states of the economy, so that the solution can arrive.
So, the answer would be
= -6.48% + (-2.4%) +8.16% +4.9% + 8.5%
= 12.68% round off = 12.7%
Thus, the Stock A's expected return is 12.7%
And, the correct answer is b.12.7%
