Stock Return = State * Return if
state occurs
Putting values
10.35% = [0.28 * (-9.6%)] + (0.41 * 11.10%) + (0.31 * Rate of return in Boom State)
10.35% = -0.02688 + 0.04551 + (0.31 * Rate of return in Boom State)
0.1035 = 0.01863 + (0.31 * Rate of return in Boom State)
(0.31 * Rate of return in Boom State) = 0.1035 - 0.01863
(0.31 * Rate of return in Boom State) = 0.08487
Rate of return in Boom State = 0.08487 / 0.31
Rate of return in Boom State = 27.38%
A stock has an expected return of 10.35 percent. Based on the following information, what is...
A stock has an expected return of 10.38 percent. Based on the following information, what is the stock's return in a boom state of the economy? State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .29 − 9.7 % Normal .40 11.2 % Boom .31 ? Multiple Choice 26.35% 28.11% 29.38% 30.66% 24.59%
Based on the following information, what is the expected return? State of Economy Recession Normal Boom Probability of State of Economy .28 .41 .31 Rate of Return if State Occurs - 9.60% 11.10% 21.40% Multiple Choice 11.19% 8.07% 7.63% 8.50% 13.87%
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