Question

calculate the expected return on stock of gamma inc.: state of the economy probability of the states percentage returns economic recession 26% -5.1% steady economic growth 47% 3.3% boom please calculate it 14.4% round the answers to two decimal places in percentage form.

Answer 1

To calculate the expected return on stock of Gamma Inc., multiply the percentage returns for each state of the economy by their respective probabilities and sum them up. The expected return is approximately 4.11%.

Step-by-step explanation:

To calculate the expected return on stock of Gamma Inc., we need to multiply the percentage returns for each state of the economy by their respective probabilities and sum them up.

For the economic recession state, the percentage return is -5.1% and the probability is 26%. So, (-5.1% * 26%) = -1.326%.

For the steady economic growth state, the percentage return is 3.3% and the probability is 47%. So, (3.3% * 47%) = 1.551%.

For the boom state, the percentage return is 14.4% and the probability is 27%. So, (14.4% * 27%) = 3.888%.

Finally, we add up these values: -1.326% + 1.551% + 3.888% = 4.113%.

Therefore, the expected return on stock of Gamma Inc. is approximately 4.11%.