3. The stock of Digimon is expected to produce the following returns given the v

Question

3.

The stock of Digimon is expected to produce the following returns given the various states of the economy.

                                                            Probability

                        State of                        of State of                     Rate of

                        Economy                      Economy                      Return

                        Recession                        0.20                            -0.18

                        Normal                              0.70                             0.09

                        Boom                                0.10                             0.14

Explanation / Answer

Rp=Pa×Ra+Pb×Rb+Pc×Rc

Rp is return on portfolio

P is probability of respective portfolios

R is return on respective portfolios

= 0.20×-0.18+0.70×0.09+0.10×0.14

Expected return = 4.1%

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