Consider the following information:
|State of Economy||Probability of State of Economy||Portfolio Return if State Occurs Recession|
Calculate the expected return.
Expected return on a Stock:
Expected return of a stock is given as the sum of the individual returns under different states of economy multiplied by the individual probabilities of the different states of economy.
Answer and Explanation:
= Sum of (Individual return x Individual probabilities)
= (0.55 x 0.16 + 0.26 x 0.24 - 0.81 x 0.10)
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Learn more about this topic:
from Finance 101: Principles of FinanceChapter 12 / Lesson 2