Question

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Consider the following information: State of Probability of Portfolio Return Economy State of Economy If State Occurs Recession - 15 Normal Boom 33 46 Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return

Answer 1

Answer:

Expected Return = (Probability of Recession * Recession’s Return) + (Probability of Normal * Normal’s Return) + (Probability of Boom * Boom’s Return)
Expected Return = (0.21 * -0.15) + (0.46 * 0.11) + (0.33 * 0.37)
Expected Return = 0.1412
or Expected Return = 14.12%