Question

Hello, Please Solve the following problems with details:

1. Analysts predict that over the next year, Thete, Inc.’s common stock has a 30% chance of returning 25%, a 40% chance of returning 16%, and a 30% chance of returning 6%. What is the expected rate of return on Thete, Inc.’s common stock? Submit your answer as a percentage and round to two decimal places.

Thank you,

Answer 1

The expected rate of return on Thete, Inc.’s common stock is computed as shown below:

= Probability of returning 25% x 25% + Probability of returning 16% x 16% + Probability of returning 6% x 6%

= 0.30 x 0.25 + 0.40 x 0.16 + 0.30 x 0.06

= 15.7%

Feel free to ask in case of any query relating to this question