LJP,Inc.has the following probability distribution of holding period returns on its stock. $$\begin{array} { l c c }
\text { State of the Economy } & \text { Probability } & \text { HPR } \
\hline \text { Boom } & .25 & 25 \% \
\text { Normal growth } & .45 & 15 \% \
\text { Recession } & .30 & 9 \%
\end{array}$$
The expected return on LJP's stock is

Question

LJP,Inc.has the following probability distribution of holding period returns on its stock. $$\begin{array} { l c c } 
\text { State of the Economy } & \text { Probability } & \text { HPR } \
\hline \text { Boom } & .25 & 25 \% \
\text { Normal growth } & .45 & 15 \% \
\text { Recession } & .30 & 9 \%
\end{array}$$
The expected return on LJP's stock is

Quizplus · Accepted Answer

The expected return is the weighted average of the possible returns, where the weights are the probabilities of each return. So, the expected return is:(0.25 * 25%) + (0.45 * 15%) + (0.30 * 9%) = 15.7%

LJP,Inchas the Following Probability Distribution of Holding Period Returns on Its