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Shares of Kel Co stock will return -9.3% during a recession, 7% during a normal economy,...

Shares of Kel Co stock will return -9.3% during a recession, 7% during a normal economy, and 13.5% during a boom economy. If there is a 14% chance of recession, and 10% chance of a boom, what is the expected return for Kel Co?

(Enter your response as a percentage with two decimal places, ex: 12.34)

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Answer #1

Probability of normal=100-(14+10)=76%

Expected return=Respective return*Respective Probability

=(-9.3*0.14)+(7*0.76)+(13.5*0.1)

which is equal to

=5.37%(Approx).

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