 Business
11 December, 19:46

A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. The economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock? A. 11.10%B. 11.23%C. 12.06%D. 11.98%

+1
1. 11 December, 21:02
0
Expected Return = 11.10 %

so correct option is A. 11.10%

Explanation:

given data

return in normal economy = 11%

economy booms = 19%

economy moves loss = 8%

economists predict = 65%

boom = 25 %

chance of recession = 10%

to find out

What is the expected return on the stock

solution

we get here Expected Return for all that is

State of Economy Probability Return Expected Return

Normal 65% 11% 0.0715

Booms 25% 19% 0.0475

Recessionary 10% - 8% - 0.0080

Expected Return 0.1110

as here Expected Return = Probability * Expected Return ... 1

Expected Return = 11.10 %

so correct option is A. 11.10%