Bernard Companies stock has an expected return of 9.5 percent.The stock is expected to return 11 percent in a normal economy and 13.4 percent in a boom.The probabilities of a recession, normal economy, and a boom are 10 percent, 84 percent, and 6 percent, respectively.What is the expected return if the economy is in a recession?
A)-5.44 percent
B)-2.97 percent
C)--2.46 percent
D)-10.98 percent
E)-6.98 percent

Question

Quizplus · Accepted Answer

The expected return in a recession is -5.44 percent. This is calculated as follows:Expected return = (Probability of recession * Return in recession) + (Probability of normal economy * Return in normal economy) + (Probability of boom * Return in boom)= (0.1 * -5.44%) + (0.84 * 11%) + (0.06 * 13.4%)= -0.544% + 9.24% + 0.804%= 9.5%

Bernard Companies Stock Has an Expected Return of 9