Question

Based on the following information, what is the expected return? State of Probability of State Rate of Return if Economy of Economy State Occurs Recession .29 − 9.70% Normal .40 11.20% Boom .31 21.40% Multiple

Answer 1

g

Step-by-step explanation:

g

Answer 2

Expected Return: 8.30%

Step-by-step explanation:

The expected return is calculated by multiplying the probability of each economic state by its corresponding rate of return and then summing the results.

Recession: 0.29 * -9.70% = -2.83%

Normal: 0.40 * 11.20% = 4.48%

Boom: 0.31 * 21.40% = 6.63%

Expected Return = -2.83% + 4.48% + 6.63% = 8.30%

Therefore, the expected return based on the given information is 8.30%.