You recently purchased a stock that is expected to earn 28 p

You recently purchased a stock that is expected to earn 28 percent in a booming economy, 17 percent in a normal economy, and lose 2 percent in a recessionary economy. There is a 27 percent probability of a boom, a 65 percent chance of a normal economy, and a 8 percent chance of a recession. What is your expected rate of return on this stock? 14.33 percent 18.45 percent 9.22 percent O 15.00 percent O 2.33 percent

Solution

Expected return = -18.45 percent

p(x)	return	p*x
0.27	28%	0.0756
0.65	17%	0.1105
0.08	-2%	-0.0016