Question

You have done your research for the following investments and your friend has provided their expectations for the markets for next year.

State of Economy	Probability of State of Economy	Stock A	Stock B	Stock C	Stock D	T-bills	Stock Market
Boom	.30	20%	25%	20%	-10%	3%	20%
Normal	.40	15%	12%	16%	15%	3%	15%
Recession	.30	-16%	-15%	-8%	25%	3%	-8%

1. Calculate the expected return for stock A.
2. Calculate the expected return for stock B.
3. Calculate the expected return for stock C.
4. Calculate the expected return for stock D.
5. Calculate the expected return for T-bills.
6. Calculate the expected return for the stock market.

Answer 1

a)

b)

c)

d)

e)

f)