Question

Candace Motors stock has an expected return of 8.66 percent. The stock is expected to return 12.5 percent in a normal economy and 16 percent in a boom. The probabilities of a recession, normal economy, and a boom are 11 percent, 88 percent, and 1 percent, respectively. What is the expected return if the economy is in a recession?

Answer 1

The expected return on Candace Motors stock in a recession scenario cannot be determined with the information provided. To calculate it we would need the return figure for a recession, which is not given.

Step-by-step explanation:

The student's question asks what the expected return of Candace Motors stock would be if the economy is in a recession. Since the student has provided the probabilities and potential returns of the stock in various economic conditions, but not the return during a recession, we need to use the given information to infer or deduce the answer. With an overall expected return of 8.66%, the returns in a normal economy at 12.5%, and a boom at 16%, with their respective probabilities, it follows that the expected return not provided must balance these out to achieve the overall expected return. However, direct information to calculate the return during a recession is not provided, which means we cannot calculate it without further details.