Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$\begin{array} { c c r } \text { Eccormic State } &\text { Probability } & \text { Retum } \ \text { Fast Growth }&0.40 & 25 \% \\text { slow Growth }& 0.55 & 12 \% \\text { recession }& 0.05 & - 50 \% \end{array}$
A) ?4.3 percent
B) 14.1 percent
C) 19.1 percent
D) 29.0 percent

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$\begin{array} { c c r } \text { Eccormic State } &\text { Probability } & \text { Retum } \  \text { Fast Growth }&0.40 & 25 \% \\text { slow Growth }& 0.55 & 12 \% \\text { recession }& 0.05 & - 50 \% \end{array}$
A) ?4.3 percent
B) 14.1 percent
C) 19.1 percent
D) 29.0 percent

Quizplus · Accepted Answer

To compute the expected return, multiply each return by its probability and sum the results: $0.40 \times 25\% + 0.55 \times 12\% + 0.05 \times (-50\%) = 10\% + 6.6\% - 2.5\% = 14.1\%$.

Compute the Expected Return Given These Three Economic States, Their