You have been given this probability distribution for the holding-period return for a stock: $\begin{array}{lcc}
\text { Stock of the Economy } & \text { Probability} & \text {HPR } \
\text { Boom } &0.40&22\%\
\text { Normal growth } &0.35&11\%\
\text { Recession }&025&-9\%
\end{array}$

What is the expected holding-period return for the stock?
A) 11.67%
B) 8.33%
C) 9.56%
D) 12.4%
E) None of the options are correct.

Question

You have been given this probability distribution for the holding-period return for a stock: $\begin{array}{lcc}
  \text { Stock of the Economy } & \text {  Probability} & \text {HPR  } \
 \text { Boom } &0.40&22\%\
 \text { Normal growth } &0.35&11\%\
\text { Recession }&025&-9\%
\end{array}$

What is the expected holding-period return for the stock?
A) 11.67%
B) 8.33%
C) 9.56%
D) 12.4%
E) None of the options are correct.

Quizplus · Accepted Answer

The expected holding-period return (HPR) can be calculated by multiplying each possible return by its probability and then summing these products. Thus, the calculation is as follows: $0.40 \times 22\% + 0.35 \times 11\% + 0.25 \times (-9\%)$ = $8.8\% + 3.85\% - 2.25\%$ = $10.4\%$. Since none of the provided options match this result, the correct answer is E) None of the options are correct.

You Have Been Given This Probability Distribution for the Holding-Period