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Calculate the following questions
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Calculate the following questions. Show all work and assumptions |
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(i) |
Calculate the expected return for each of the three stocks. |
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Expert Solution
Expected return = sum (probability x return)
STOCK BA :
Expected return = 0.10 x (-5%) + 0.70 x 15% + 0.20 x 40% = 18%
STOCK BB :
Expected return = 0.10 x (-5%) + 0.70 x 12% + 0.20 x 28% = 13.5%
STOCK BC :
Expected return = 0.10 x (-7.5%) + 0.70 x 15% + 0.20 x 26% = 14.95%
As question has given return in %, i have written answer in % form
ANSWER : STOCK BA = 18%, STOCK BB = 13.5%, STOCK BC = 14.95%
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