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6 July, 07:36

An analyst is considering an investment in Treetops Inc. and has gathered the following information. What is the expected return for a share of the firm's stock?

State of the Economy Probability of the State Conditional Expected Return Treetops Inc

Recession 20 - 20%

Steady 40 10%

Boom 40 35%

a. 14.00%

b. 5.00%

c. 8.33%

d. 625%

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Answers (1)
  1. 6 July, 07:44
    0
    Expected Return =

    Recession = (20/100) * 20% = 4%

    Steady = (40/100) * 10% = 4%

    Boom = (40/100) * 35% = 14%

    Expected Return = 22%

    there is no answer in the option. The correct answer is 22%.

    Explanation:

    Expected return of share is the summation of probability multiply by the return expected in a situation of the economy.
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