Question

You are considering buying stock A. If the economy grows rapidly, you may earn 40 percent on the investment, while a declining economy could result in a 15 percent loss. Slow economic growth may generate a return of 3 percent. If the probability is 19 percent for rapid growth, 39 percent for a declining economy, and 42 percent for slow growth, what is the expected return on this investment

Answer 1

Answer:

3.01%

Explanation:

Calculation for what is the expected return on this investment

Expected return =(0.19)(0.40) + (0.42)(0.03) + (0.39)(-0.15)

Expected return=0.076+0.0126+-0.0585

Expected return=0.0301*100

Expected return=3.01%

Therefore the expected return on this investment will be 3.01%