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There is 7 percent probability of recession, 18 percent probability of a poor economy, 50 percent...

There is 7 percent probability of recession, 18 percent probability of a poor economy, 50 percent probability of a normal economy, and 25 percent probability of a boom. A stock has returns of −20.5 percent, 4.1 percent, 11.9 percent and 27.6 percent in these states of the economy, respectively. What is the stock's expected return?

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Answer #1

expected return=respective return*Respective probability

=(0.07*-20.5)+(0.18*4.1)+(0.5*11.9)+(0.25*27.6)

which is equal to

=12.153%

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