Question

Maxwell Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return?

a. 9.41%.
b. 9.65%.
c. 9.90%.
d. 10.15%.

Answer 1

c. firm's expected rate of return = 9.90%

Step-by-step explanation:

The computation of the firm expected rate of return is shown below:

= Chance of producing × return + Chance of producing × return + Chance of producing × return

= 50% × 25% + 30% × 10% + 20% × -28%

= 0.125 + 0.03 - 0.056

= 9.90%

We simply applied the above formula so that the firm expected rate of return could come and the same is to be considered