Compute the expected return given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 0.40 25 %
Slow Growth 0.55 12 %
Recession 0.05 âˆ’50 %
Multiple Choice
19.1 percent
âˆ’4.3 percent
29.0 percent
14.1 percent

The expected return is the weighted average of the returns in their economic states, and the probabilities that the economic states will happen.

The expected return is therefore:

= ( Probability of fast growth x Return in fast growth) + ( Probability of slow growth x Return in slow growth) + ( Probability of recession x Return in recession )

= ( 0.40 x 25 %) + ( 0. 55 x 12 %) + ( 0.05 x - 50 %)

= 14. 1 %

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Compute the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.40 25 % Slow Growth 0.55 12 % Recession 0.05 âˆ’50 % Multiple Choice 19.1 percent âˆ’4.3 percent 29.0 percent 14.1 percent

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Compute the expected return given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 0.40 25 %
Slow Growth 0.55 12 %
Recession 0.05 âˆ’50 %
Multiple Choice
19.1 percent
âˆ’4.3 percent
29.0 percent
14.1 percent