A stock is expected to return 11% in a normal economy,19% if the economy booms,and lose 8% if the economy moves into a recessionary period.Economists predict a 65% chance of a normal economy,a 25% chance of a boom,and a 10% chance of a recession.What is the expected return on the stock?
A) 11.10%
B) 12.06%
C) 11.98%
D) 11.23%

Question

Quizplus · Accepted Answer

E(R) = (0.65 × 0.11) + (0.25 × 0.19) + (0.10 × −0.08) = 0.1110, or 11.10%

A Stock Is Expected to Return 11% in a Normal