1. Taggart Inc.'s stock has a 50 % chance of producing a 25% return, a 30...

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1. Taggart Inc.s stock has a 50 % chance of producing a 25% return, a 30 % chance of producing a 10% return, and a 20 % chan

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Answer 1

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Ans : Firm expected rate of return = Probability 1 * expected return 1 at probability 1 + Probability 2 * expected return 2 at probability 2 + Probability 3 * expected return 3 at probability 3 + Probability 4 * expected return 4 at probability 4

= 50 % * 25% + 30% * 10% + 20% * (-28%)

= 0.5*0.25 + 0.3 *0.1 + 0.2 * (-0.28)

= 0.125 + 0.03 - 0.056

= 0.099

= 9.9 %

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