Question

4) Stock A has the following returns for various states of the economy: State of the Economy Probability 9% Stock As Return
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Answer #1

None of the option is correct. The expected return is 12.68% as shown below:

State of the Economy Probability Stock A's return
P R E=P*R
Recession 9% -72%     -0.0648
Below Average 16% -15%     -0.0240
Average 51% 16%      0.0816
Above Average 14% 35%      0.0490
Boom 10% 85%      0.0850
100% 12.68%
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