Question

You recently purchased a stock that is expected to earn 25 percent in a booming economy,...

You recently purchased a stock that is expected to earn 25 percent in a booming economy, 10 percent in a normal economy, and lose 38 percent in a recessionary economy. There is a 10 percent probability of a boom and a 75 percent chance of a normal economy. What is your expected rate of return on this stock?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Expected Return = Weighted Average

Let the probability be P and returns be X. The total of the PX column is the Expected Return

The expected return of the stock is 4.30%.

Notes

  • How did we find the probability in the recessionary economy

The total of probability has to be 1

= 1 - Probability of Boom - Probability of Normal

=1 - 0.10 - 0.75

= 0.15

  • As we are losing 38% recessionary economy we will show it as negative return or -38%.
  • Probability 10% can be written as 0.10

Probability 75% can be written as 0.75

Probability 15% can be written as 0.15

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You recently purchased a stock that is expected to earn 20 percent in a booming economy,...
You recently purchased a stock that is expected to earn 20 percent in a booming economy, 10 percent in a normal economy, and lose 30 percent in a recessionary economy. There is a 5 percent probability of a boom and an 80 percent chance of a normal economy. What is the expected rate of return and standard deviation on this stock?
You recently purchased a stock that is expected to earn 17 percent in a booming economy,...
You recently purchased a stock that is expected to earn 17 percent in a booming economy, 12 percent in a normal economy, and lose 5 percent in a recessionary economy. There is 17 percent probability of a boom, 66 percent chance of a normal economy, and 17 percent chance of a recession. What is your expected rate of return on this stock? 8.00% 4.17% 9.96% 4.98% 9.67%
You recently purchased a stock that is expected to earn 33 percent in a booming economy,...
You recently purchased a stock that is expected to earn 33 percent in a booming economy, 13 percent in a normal economy, and lose 40 percent in a recessionary economy. There is a 15 percent probability of a boom and a 60 percent chance of a normal economy. What is standard deviation on this stock?
You recently purchased a stock that is expected to earn 19 percent in a booming economy,...
You recently purchased a stock that is expected to earn 19 percent in a booming economy, 8 percent in a normal economy, and lose 28 percent in a recessionary economy. There is a 20 percent probability of a boom and a 70 percent chance of a normal economy. What is standard deviation on this stock?
You recently purchased a stock that is expected to earn 19 percent in a booming economy,...
You recently purchased a stock that is expected to earn 19 percent in a booming economy, 8 percent in a normal economy, and lose 28 percent in a recessionary economy. There is a 20 percent probability of a boom and a 70 percent chance of a normal economy. What is standard deviation on this stock? show the answer in detail.
You recently purchased a stock that is expected to earn 19 percent in a booming economy,...
You recently purchased a stock that is expected to earn 19 percent in a booming economy, 12 percent in a normal economy, and lose 8 percent in a recessionary economy. The probability of a boom economy is 16 percent while the probability of a normal economy is 78 percent. What is your expected rate of return on this stock? Group of answer choices 12.54 percent 12.40 percent 10.25 percent 11.92 percent 13.50 percent
The common stock of Steve & Rob is expected to earn 38 percent in a boom...
The common stock of Steve & Rob is expected to earn 38 percent in a boom economy, 9 percent in a normal economy, and lose 20 percent in a recession. The probability of a recession is 25 percent while the probability of a boom economy is 45 percent. What is the expected rate of return on this stock? Hint: First find the probability of normal economy. Only Enter the Final Answer in Decimals. Select one of the following: 0.136 0.054...
Assume that the economy has an 30% chance of booming, a 30% chance of being normal,...
Assume that the economy has an 30% chance of booming, a 30% chance of being normal, and being recessionary the remainder of the time. A stock is expected to return 24.76% in a boom economy, 16.88% in a normal economy, and -14.50% in a recession economy. What is the standard deviation of returns on the stock?
KNF stock is quite cyclical. In a boom economy, the stock is expected to return 34...
KNF stock is quite cyclical. In a boom economy, the stock is expected to return 34 percent in comparison to 13 percent in a normal economy and a negative 22 percent in a recessionary period. The probability of a recession is 15 percent while the chance of a boom is 4 percent. What is the standard deviation of the returns this stock?
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent...
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in a recession. The probability of a recession is 33 percent and the probability of a booming economy is zero. What is the variance of the returns on RTF stock? Show Claculaions please !!!! 0.019394 0.017864 0.014946 0.013760 0.019093
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT