Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r }
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.1 & 50 \% \
\text {slow growth }&0.6 & 8\% \
\text { recession }&0.3 & - 10\%
\end{array}
\end{array}$$
A) 6.8 percent
B) 12.8 percent
C) 16.0 percent
D) 22.7 percent

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r } 
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.1 & 50 \% \
\text {slow growth }&0.6 & 8\% \
\text { recession }&0.3 & - 10\%
\end{array}
\end{array}$$
A) 6.8 percent
B) 12.8 percent
C) 16.0 percent
D) 22.7 percent

Quizplus · Accepted Answer

The expected return is calculated by multiplying each return by its probability and summing these products: $0.1 \times 50\% + 0.6 \times 8\% + 0.3 \times (-10\%) = 5\% + 4.8\% - 3\% = 6.8\%$.

Compute the Expected Return Given These Three Economic States, Their