Calculate the expected return on stock of Gamma Inc.: State of the economy Proba

ID: 2790332 • Letter: C

Question

Calculate the expected return on stock of Gamma Inc.:

State of the economy Probability of the states Percentage returns

Economic recession 13% -7.9%

Steady economic growth 43% 2.3%

Boom Please calculate 12.4%

Round the answers to two decimals places in percentage form.

**Can you please show how you get to the expected rate?

Step 1 = 100 - 13 - 43 = 44 ( I get that)

Step 2 is where I get confused.

0.13 x 7.9% + 0.43 x 2.3% + 0.44 x 13.4% = 0.01027 + 0.00989 + 0.05896 = 0.07912 am I missing a step in this equation???

probability of boom = 100 - 13 - 43 = 44%

expected return = 0.13*-7.9 + 0.43*2.3 + 0.44*12.4 = 5.4180%

the first part has a negative sign which you missed out

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