Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r }
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.2 & 23 \% \
\text {slow growth }&0.6 & 14\% \
\text { recession }&0.2 & - 30\%\
\end{array}
\end{array}$$
A) 3.5 percent
B) 7.0 percent
C) 7.5 percent
D) 12.5 percent

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r } 
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.2 & 23 \% \
\text {slow growth }&0.6 & 14\% \
\text { recession }&0.2 & - 30\%\
\end{array}
\end{array}$$
A) 3.5 percent
B) 7.0 percent
C) 7.5 percent
D) 12.5 percent

Quizplus · Accepted Answer

The expected return is calculated by multiplying each return by its probability and summing these products: $0.2 \times 23\% + 0.6 \times 14\% + 0.2 \times (-30\%) = 4.6\% + 8.4\% - 6\% = 7\%$.

Compute the Expected Return Given These Three Economic States, Their