An analyst estimates there is a probability of 22 percent that there will be a recession next year. He thinks the probability of things being normal is three times the probability of a recession, with the remaining probability assigned to a boom taking place. A stock is expected to return -18 percent in a recession, 9 percent under normal conditions and 22 percent if there is a boom. What is the expected return (in percent) on this stock? Answer to two decimals, carry intermediate calcs. to four decimals.
An analyst estimates there is a probability of 22 percent that there will be a recession next year. He thinks the probability of things being normal is three times the probability of a recession, with the remaining probability assigned to a boom taking place. A stock is expected to return -18 percent in a recession, 9 percent under normal conditions and 22 percent if there is a boom. What is the expected return (in percent) on this stock? Answer to two decimals, carry intermediate calcs. to four decimals.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 15P
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning