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Use the following scenario analysis for stocks X and Y to answer the questions. Round to...

Use the following scenario analysis for stocks X and Y to answer the questions. Round to the nearest 1/100 of 1% (i.e., 15.07%).

Bear

Normal

Bull

Market

Market

Market

Probability

15.00%

50.00%

35.00%

Stock X

-12.00%

10.00%

21.00%

Stock Y

-22.00%

14.00%

39.00%

3.a) What are the expected rates of return for stocks X and Y

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Answer #1

Expected Return=Respective return*Respective probability

Expected Return of X=(0.15*-12)+(0.5*10)+(0.35*21)=10.55%

Expected Return of Y=(0.15*-22)+(0.5*14)+(0.35*39)=17.35%

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