If a project's expected return is 15 percent, which represents a 35 percent return in a booming economy and a 5 percent return in a stagnant economy, what is the probability of a booming economy?
A)18.33 percent
B)25.00 percent
C)33.33 percent
D)50.00 percent

Question

Quizplus · Accepted Answer

Let x be the probability of a booming economy.
Expected return = (0.35)(15%)x + (0.05)(15%)(1 - x) = 15%
Simplifying and solving for x, we get x = 33.33%. Therefore the probability of a booming economy is 33.33%.

If a Project's Expected Return Is 15 Percent, Which Represents