You recently purchased a stock that is expected to earn 18 percent in a booming

Question

You recently purchased a stock that is expected to earn 18 percent in a booming economy, 13 percent in a normal economy, and lose 4 percent in a recessionary economy. There is a 21 percent probability of a boom, a 68 percent chance of a normal economy, and a 11 percent chance of a recession. What is your expected rate of return on this stock?

6.09 percent

9.00 percent

12.18 percent

3.70 percent

10.33 perce

You recently purchased a stock that is expected to earn 18 percent in a booming economy, 13 percent in a normal economy, and lose 4 percent in a recessionary economy. There is a 21 percent probability of a boom, a 68 percent chance of a normal economy, and a 11 percent chance of a recession. What is your expected rate of return on this stock?

Explanation / Answer

Expected Return is 12.18% Particulars Weight Expected Return Weighted Return Boom 21% 18.00% 3.78% Normal 68% 13.00% 8.84% Recession 11% -4.00% -0.44%                      1.00 12.18%

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