Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?
A) 7.89 percent
B) 8.56 percent
C) 9.43 percent
D) 9.90 percent
E) 10.02 percent

Question

Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock? 
A) 7.89 percent 
B) 8.56 percent 
C) 9.43 percent 
D) 9.90 percent 
E) 10.02 percent

Quizplus · Accepted Answer

To calculate the expected return, we need to take the weighted average of the returns of each state, weighted by their respective probabilities.

Expected Return = (0.1 x 6%) + (0.2 x 8%) + (0.35 x 10%) + (0.3 x 12%) + (0.05 x 15%) 
Expected Return = 0.6% + 1.6% + 3.5% + 3.6% + 0.75% 
Expected Return = 9.90%

Therefore, the expected return on this stock is 9.90%. The best choice is D.

Candy and More Stock Is Expected to Produce the Following