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An analyst is considering an investment in Treetops Inc. and has gathered the following information. What is the expected return for a share of the firm's stock?
State of the Economy Probability of the State Conditional Expected Return Treetops Inc
Recession 20 -20%
Steady 40 10%
Boom 40 35%
a. 14.00%
b. 5.00%
c. 8.33%
d. 625%

Respuesta :

Answer:

Expected Return =

Recession  = ( 20/100)* 20%   =  4%

Steady      =   (40/100)*10%      =  4%

Boom       =   ( 40/100)  *  35%   =  14%

         Expected Return =           22%

there is no answer in the option. The correct answer is 22%.

Explanation:

Expected return of share is the summation of probability multiply by the return expected in a situation of the economy.

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