Calculate the expected returns for Roll and Ross by filling in the following tab

Question

Calculate the expected returns for Roll and Ross by filling in the following table (verify your answer by expressing returns as percentages as well as decimals): (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your E(R) answers to 2 decimal places and your Product answers to 4 decimal places. Omit the "%" sign in your response.)

References

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WorksheetDifficulty: 1 EasySection: 11.1 Expected Returns and Variances

Problem 11-4Learning Objective: 11-01 How to calculate expected returns and variances for a security.

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Security Returns If State Occurs   State of Probability of   Economy State of Economy Roll     Ross        Bust .60 -15 % 15 %   Boom .40 32 5

Explanation / Answer

Answer:

  

Roll

Ross

  State of   Economy

Probability of

Return If

Product

   Return if

Product

State of Economy

State Occurs

State Occurs

A

B

A*B

C

A*C

  Bust

0.6

-15.00%

-9.00%

15.00%

9.00%

  Boom

0.4

32.00%

12.80%

5.00%

2.00%

   

ER (%)

3.80%

E(R) =   

11.00%

   

ER (Decimal)

     0.038

     0.110

  

Roll

Ross

  State of   Economy

Probability of

Return If

Product

   Return if

Product

State of Economy

State Occurs

State Occurs

A

B

A*B

C

A*C

  Bust

0.6

-15.00%

-9.00%

15.00%

9.00%

  Boom

0.4

32.00%

12.80%

5.00%

2.00%

   

ER (%)

3.80%

E(R) =   

11.00%

   

ER (Decimal)

     0.038

     0.110

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