Calculate the expected return on stock of Gamma Inc.: State of the economy Probability of the...

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Calculate the expected return on stock of Gamma Inc.: State of the economy Probability of the...

Calculate the expected return on stock of Gamma Inc.:

State of the economy	Probability of the states	Percentage returns
Economic recession	27%	-7.3%
Steady economic growth	40%	3.9%
Boom	Please calculate it	13.7%

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Answer 1

Answer #1

Calculation of expected return:

Probability of boom= 1-0.27-0.40= 0.33

Expected return= (weight of economic*return of economic)+(weight of steady economic*return)+(weight of boom*return)

Expected return= (0.27*-7.3)+(0.40*3.9)+(0.33*13.7)= 4.11

Expected return= 7.11%

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Answer 2

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