You have been given this probability distribution for the holding-period return for KMP stock: $\begin{array}{lll}
\underline{\text { State of the Economy }} & \underline{\text { Probability }} &\underline{ \text { HPR } }\
\text { Boom } & .30 & 18\% \
\text { Normal growth } & .50 & 12\%\
\text { Recession } & .20 & -5\%
\end{array}$

-What is the expected holding-period return for KMP stock?
A)10.40%
B)9.32%
C)11.63%
D)11.54%
E)10.88%

Question

You have been given this probability distribution for the holding-period return for KMP stock: $\begin{array}{lll}
\underline{\text { State of the Economy }} & \underline{\text { Probability }} &\underline{ \text { HPR } }\
\text { Boom } & .30 & 18\% \
\text { Normal growth } & .50 & 12\%\
\text { Recession } & .20 & -5\%
\end{array}$

-What is the expected holding-period return for KMP stock?
A)10.40%
B)9.32%
C)11.63%
D)11.54%
E)10.88%

Quizplus · Accepted Answer

The expected holding-period return is the weighted average of the possible returns, where the weights are the probabilities of each return. So, the expected return is:(0.30 x 18%) + (0.50 x 12%) + (0.20 x -5%) = 10.40%

You Have Been Given This Probability Distribution for the Holding-Period