Use the following information on states of the economy and stock
returns to calculate the expected...
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Finance
Use the following information on states of the economy and stockreturns to calculate the expected return for Dingaling Telephone:(Do not round intermediate calculations. Enter your answeras a percent rounded to 2 decimal places.)
State of Economy
Probability of State of Economy
Security Return If State Occurs
Recession
0.4
-11
%
Normal
0.2
16
Boom
?
23
Answer & Explanation
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3.8 Ratings (709 Votes)
Probability of boom economy= 1 – (0.4 + 0.2)
= 1 – 0.6
= 0.4
Expected return= 0.4*-11% + 0.2*16% + 0.4*23%
= -4.40% + 3.20% + 9.20%
= 8%.
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