Calculate the expected return. (Do not round intermediate calculations. Enter yo

Question

Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return ____%

Consider the following information: State of Economy Probability of
State of Economy Portfolio Return
If State Occurs   Recession .18 .14   Normal .54 .15   Boom .28 .23

Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return ____%

Explanation / Answer

Expected return is the weighted average of individual returns

Expected return = 0.18*-0.14 + 0.54*0.15 + 0.28*0.23 = 0.1202 = 12.02%

Expected return = 12.02%

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