BPJ stock is expected to earn 14.8 percent in a recession,6.3 percent in a normal economy,and lose 4.7 percent in a booming economy.The probability of a boom is 20 percent while the probability of a normal economy is 55 percent.What is the expected rate of return on this stock?
A)6.23 percent
B)6.72 percent
C)6.81 percent
D)7.60 percent
E)8.11 percent

Question

Quizplus · Accepted Answer

The expected rate of return is calculated by multiplying each possible return by its probability and summing the results: (0.148 * 0.25) + (0.063 * 0.55) + (-0.047 * 0.20) = 6.23 percent.

BPJ Stock Is Expected to Earn 14