Use the following information on states of the economy and stock returns to calc

Question

Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

State of Economy            Probability of State of Economy         Security Return if State Occurs

Recession                                       .50                                                   -10.00%
Normal                                           .30                                                     15.00
Boom                                             .20                                                       21.00


Expected Return:

Explanation / Answer

We will calculated the weighted average of the returns: .50(-.10) + .30(.15) + .20(.21) = .037 The expected return is 3.7%.

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