5.2.14-T You are trying to develop a strategy for investing in two different sto

Question

5.2.14-T You are trying to develop a strategy for investing in two different stocks. TheProbability Economic Condition Stock X anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the probability distribution shown to the right. Complete parts (a) through (d) Returns 0.2 Recession 0.3 Slow growth 0.1Moderate growth 0.4 Fast growth 45 20 110 140 Stock Y - 120 25 120 175 a. Compute the expected return for stock X and for stock Y. The expected return for stock X is $ (Type an integer or a decimal.)

Explanation / Answer

a) Expected returns for stock X = 0.2(-45) + 0.3(20) + 0.1(110) + 0.4(140) = $ 64

Expected returns for stock Y = 0.2(-120) + 0.3(25) + 0.1(120) + 0.4(175) = $ 65.5

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