Question

Stock A has the following returns for various states of the economy State of the Economy Probability Stock A's Return Recession 9 72 Below Average 16 15 Average 51 16 Above Average 14 35 Boom 10 85 Stock A's expected return is Group of answer choices 13.8 12.7 16.5 9.9

Answer 1

the expected return is 12.7%

Step-by-step explanation:

The computation of the expected return is given below:

Expected return = Respective probability × respective return

= (-72 × .09) + (-15 × .16) + (16 × .51) + (35 × .14) + (85 × .10)

= -6.48% -2.4% + 8.16% + 4.9% + 8.5%

= 12.68%

= 12.7%

Hence, the expected return is 12.7%

The above formula should be used for the same.