Consider the following information:

rate of return if state occurs
state of probability of
economy state of economy stock a stock b
recession .16 .07 − .11
normal .57 .10 .18
boom .27 .15 .35

calculate the expected return for each stock. (do not round intermediate calculations. enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.)

10.87% ; 17.95%

Explanation:

Expected return:

= (probability of recession × return during recession) + (probability of normal × return during normal) + (probability of boom × return during boom )

Expected return for stock A:

= (0.16 × 0.07) + (0.57 × 0.10) + (0.27 × 0.15)

= 0.1087

= 10.87%

Expected return for stock B:

= (0.16 × -0.11) + (0.57 × 0.18) + (0.27 × 0.35)

= 0.1795

= 17.95%

a

explanation:

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