Question

Stock A has the following returns for various states of the economy: State of the Economy Probability Stock A's Return Recession 5% 15% Below Average 25% -2% Average 40% 9% Above Average 25% 14% Boom 5% 30%

Stock A's expected return is:

		8.85%
		6.60%
		7.35%
		8.35%

Answer 1

expected return	8.85%
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Please find below the answer
Statement showing Computations
State of economy	Probability	Return	expected return
Recession	5%	15%	0.75%
Below average	25%	-2%	-0.50%
Average	40%	9%	3.60%
Above Average	25%	14%	3.50%
Boom	5%	30%	1.50%
		expected return	8.85%