State of Economy - Probability of State of Economy - Rate of Return if State Occ

Question

State of Economy - Probability of State of Economy - Rate of Return if State Occurs

Recession: 0.43 -.12 Boom: 0.57 . 24

Calculate the expected return.

i Safari File Edit View History Bookmarks Window Help @) ' 43%C4} Wed Dec 6 18:21 a E ezto.mheducation.com CH 11 Consider The Following Information: State Of Econo... Chegg.com CH 11 Instructions I help Question 2 (of 8) Save & ExitSubmit 2. 1.50 points Problem 11-5 Calculating Expected Return [LO 1] Consider the following information: State of Economy Recession Boom Probability of State of Economy 43 .57 Rate of Return if State Occurs 24 Calculate the expected retum. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return References eBook &Resources; Worksheet Difficulty: 1 Basic Section: 11.1 Expected Retums and Variances Problem 11-5 Calculating Expected Return [LO 1] Learning Objective: 11-01 Calculate expected returns. 6

Explanation / Answer

expected return=Respective returns*Respective probabilities

=(0.43*-0.12)+(0.57*0.24)

which is equal to

=8.52%

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