Question

Consider the following information: State of Economy Recession Normal Boom Probability of State of Economy 0.11 0.65 0.24 Rate of Return if State Occurs 0.01 0.13 0.26 Required: Calculate the expected return. ? 15.16% ? 14.58% ? 13.85% 0 2.53% ? 15.31% /O

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Answer #1
Calculation of expected return:
State of Economy' Probability(a) Return(%) (b) (a)*(b)
Recession 0.11 -1 -0.11
Normal 0.65 13 8.45
Boom 0.24 26 6.24
Expected Return 14.58
So correct answer is 14.58%
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