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mylen [45]
2 years ago
11

Argo, a firm organizing adventure travel, has returns that vary with the economy. Argo predicts that there is a 20% probability

of a strong economy, a 50% probability of a normal economy, and a 30% probability of a weak economy. Given a strong economy, Argo expects a 35% return, given a normal economy, Argo expects a 14% return, and given a weak economy, Argo expects to lose 20%. What is the expected return for Argo
Business
1 answer:
nexus9112 [7]2 years ago
5 0

Answer: 8%

Explanation:

The expected return is a weighted average of the returns given the probability of certain states of the economy:

= (Prob. of boom * return if boom) + (Prob. of normal * return if normal) + (Prob. of  weak * return if weak)

= (20% * 35%) + (50% * 14%) + (30% * -20%)

= 0.07 + 0.07 - 0.06

= 8%

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Answer:

Instructions are listed below.

Explanation:

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(3) a six-period annuity of $17,400 beginning one year from today.

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