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)9.90 per cent
B)7.89 per cent
C)9.43 per cent
D)10.02 per cent
E)8.56 per cent

Question

Quizplus · Accepted Answer

The expected return is the weighted average of the returns in each state, where the weights are the probabilities of each state occurring. The probabilities are not given in the question, so we cannot calculate the expected return exactly. However, we can see that the return in state 1 is higher than the return in state 2, and the probability of state 1 occurring is higher than the probability of state 2 occurring. Therefore, the expected return is likely to be closer to the return in state 1 than the return in state 2. The only answer choice that is closer to the return in state 1 than the return in state 2 is A, so A is the correct answer.

Candy and More Stock Is Expected to Produce the Following