A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. The economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock?
A) 11.98%
B) 12.06%
C) 11.10%
D)11.23%

Question

Quizplus · Accepted Answer

E(R) = (0.65 × 0.11) + (0.25 × 0.19) + (0.10 × -0.08) = 0.1110, or 11.10%

A Stock Is Expected to Return 11% in a Normal