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Homework answers / question archive / Suppose a stock will have a return of -9% during a recession, and a return of 18% with normal market condition
Suppose a stock will have a return of -9% during a recession, and a return of 18% with normal market condition. If over the next year, the chance of recession is 32%, and the chance of normal condition is 68%. What is the stock's expected return for the next year (in percentage terms)?
Expected return=Respective return*Respective probability
=(0.68*18)+(0.32*-9)
which is equal to
=9.36%
