You recently purchased a share that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy.There is a 15% probability of a boom, a 75%
Chance of a normal economy, and a 10% chance of a recession.What is your expected rate of return
On this share?
A)5.00%
B)6.45%
C)7.30%
D)7.65%
E)8.30%

Question

Quizplus · Accepted Answer

The expected rate of return is calculated by multiplying each possible return by its probability and summing the results: (0.15 * 12%) + (0.75 * 8%) + (0.10 * -5%) = 7.30%.

You Recently Purchased a Share That Is Expected to Earn