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Homework answers / question archive / T Martell Inc stock has a 5096 ctmce of producmg a 30% retum, a 25, chance of a 9% mill, and a 25% ctmce of oducmg a -25% returm What Is Martell's am 10
T Martell Inc stock has a 5096 ctmce of producmg a 30% retum, a 25, chance of a 9% mill, and a 25% ctmce of oducmg a -25% returm What Is Martell's am 10.0%
Macs.
15.2%
16.0%
Ice%
17.6%
Answer
a .
Explanation
Computation of Expected Return:
Expected Return = p1 * Er1 + p2 * Er2 + p3 * Er3
Here,
p1 = 50% = 0.5, p2 = 25% = 0.25, p3 = 25% = 0.25
Er1 = 30%, Er2 = 9%, Er3 = -25%
So,
Expected return = (0.5 * 30%) + (0.25 * 9%) + (0.25 * (-25%))
Expected return = 15% + 2.25% + (- 6.25%)
Expected return = 15% + 2.25% + (- 6.25%)
Expected return = 15% + 2.25% - 6.25%
Expected return = 11%
So, Expected Return is 11% which is not given in the options. So, just to submit answer i have ticked on Option A.
