Alpha and Omega have the following data: Economic State Probability of Occurrence Rate of Return Good Better Recession 0

Finance Dec 21, 2020

Alpha and Omega have the following data: Economic State Probability of Occurrence Rate of Return Good Better Recession 0.2 5% 7% Normal 0.5 15% 10% Boom 0.3 20% 25% Suppose you invest $40,000 in Alpha and $65,000 in Omega , calculate the expected return on both companies

Expert Solution

Alpha
Scenario	Probability	Return%	=rate of return% * probability
Recession	0.2	5	1
Normal	0.5	15	7.5
Boom	0.3	20	6

	Expected return %=	sum of weighted return =	14.5


omega
Scenario	Probability	Return%	=rate of return% * probability
Recession	0.2	7	1.4
Normal	0.5	10	5
Boom	0.3	25	7.5

	Expected return %=	sum of weighted return =	13.9

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