Bernard Companies stock has an expected return of 10.75 percent.The stock is expected to return 13.5 percent in a normal economy and 19.6 percent in a boom.The probabilities of a recession, normal economy, and a boom are 5 percent, 80 percent, and 15 percent, respectively.What is the expected return if the economy is in a recession?
A)-59.80 percent
B)-42.77 percent
C)-68.20 percent
D)-36.72 percent
E)-63.76 percent

Question

Quizplus · Accepted Answer

The expected return in a recession is -59.80%. This is calculated as follows:Expected return = (Probability of recession * Return in recession) + (Probability of normal economy * Return in normal economy) + (Probability of boom * Return in boom)= (0.05 * -59.80%) + (0.80 * 13.5%) + (0.15 * 19.6%)= -2.99% + 10.8% + 2.94%= 10.75%

Bernard Companies Stock Has an Expected Return of 10