Question

TURN MANAGEMENT formative forum-Graded 4) Stock A has the following returns for various states of the economy: State of the Economy Recession Below Average Average Above Average Boom Probability 9% 16% 51% 14% 10% Stock A's Return -72% -15% 16% 35% 85% Stock A's expected return is A) 16.5%. C) 13.8%. D) 12.7%. B) 9.9%.

Answer 1

Solution Summary :

The problem was asked to find out the Stock A's expected return (ER) from the various scenarios of state of the Economy.

Expected Return(ER) Formula = R₁P₁ + R₂P₂ + . . . . . . . . R_nP_n

Therefore the outcome of the given problem that is Stock A's return is option "D" 12.7%.(12.68% approx)

Detailed solution is in handwritten notes which is in 2 parts of uploaded images.

Kindly go through.

Schlution - Question in Given slock As returns for Various states of economy along with its probability. statement showing Calculation of As expected Return (ER): stock Formula :- Expected Reton - R.P+R₂ Put...... RuPa Formda (ER) - . Where R = Retom expectation in a given Scenario P= Probability of the return being achieved in the scenario no scenaro number - Calculation is given of in the Tabular solution forma below:-

Retom state of Probability Stock As Stock Als Expected the Economy (P) Retorn (R) ER=Ripit Reput Rain Recession 97. -727. (91.x - 72%) = -6.484. (1674-154) = -2.40% 161. - 157 (51)+(61.) = 8.164 SIL 16% Above Average 141 (141.4 35%) = 4.at Boon SS. (104.785%) = 8.51. (sum) stock As Expected Returm (ER) Total = 12.68%. Below Average Average 141354 Therefore stock As is option "D" (approx +2-687.). expected e approx retorn 12.74