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Problem 8-01 You are considering buying stock A. If the economy grows rapidly, you may earn...

Problem 8-01

You are considering buying stock A. If the economy grows rapidly, you may earn 15 percent on the investment, while a declining economy could result in a 25 percent loss. Slow economic growth may generate a return of 7 percent. If the probability is 17 percent for rapid growth, 13 percent for a declining economy, and 70 percent for slow growth, what is the expected return on this investment? Round your answer to one decimal place.

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Answer #1

Mu MA -257 Sot; - Stock A Economy Return Probability Return x Prob 0% Rapid 0.17 2.55 Decline 013 -3.25 slow 0.70 4.90 4. 20

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