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kotykmax [81]
3 years ago
5

A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessi

onary period. Economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock
Business
1 answer:
Serjik [45]3 years ago
7 0

Answer:

Expected return  = 50.4%

Explanation:

<em>The expected rate of return is the weighted average of all the possible returns associated with an investment decision. The returns are weighted using the probability associated with their outcomes.</em>

Expected return = WaRa + Wb+Rb + Wn+Rn

W- weight of the outcome, R - return of the outcome

E(R) = 11% ×0.65) + ( 19%× 0.25) + (-8%×0.1)

      = 50.4%

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