Consider the following information:
State of Economy | Probability of State of Economy | Rate of Return if state occurs |
Recession | .11 | -0.06 |
Norma; | .55 | .14 |
Boom | .34 | .3 |
Calculate the expected return.
Ans 0.1724
Probability (P) | RETURN (Y) | (P * Y ) | |
11% | -6 | -0.66 | |
55% | 14 | 7.70 | |
34% | 30 | 10.20 | |
TOTAL | 17.24 | ||
Expected Return = | (P * Y) | ||
17.24% |
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