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Homework answers / question archive / Alpha and Omega have the following data: Economic State Probability of Occurrence Rate of Return Good Better Recession 0

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

Finance

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

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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