Everrest Inc

Marketing Dec 22, 2020

Everrest Inc.'s stock has a 39% chance of producing a 12.50% return, a 28% chance of producing a 22.50% return, and a 33% chance of producing a 4.25% return. What is the firm's expected rate of return?

Expert Solution

The expected rate of return is the average of the rate of returns in different states, weighted by the probability of each state, i.e.,

expected return = 39% * 12.50% + 28% * 22.50% + 33% * 4.25%
expected return = 12.58%

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