Question

Taggart Inc s stock has a 50 chance of producing a 36 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 Do not round your intermediate calculations

Answer 1

Multiply each % return with the % chance and add them together. Be aware that the last percentage is negative.

50%*36%=18%

30%*10%=3%

20%*(-28%)=-5.6%

Sum = 15.4%

Step-by-step explanation:

Answer 2

26.3%

Step-by-step explanation:

To calculate Taggart's expected rate or return (RoR) we must multiply each possible RoR times its relevant weight, and then add all the results:

Taggart Inc. expected rates of return:

50% x 36% RoR = 18% RoR

30% x 10% RoR = 3% RoR

20% x 28% RoR = 5.6% RoR

Taggart's RoR = 18% + 3% + 5.6% = 26.3%