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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 0.2 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
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 |