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bpj stock is expected to earn 14.8 percent in a recession, 6.3 percent in a normal economy, and lose 4.7 percent in a booming economy. the probability of a boom is 20 percent while the probability of a normal economy is 55 percent. what is the expected rate of return on this stock? multiple choice 6.23 percent 6.72 percent 6.81 percent 7.60 percent 8.11 percent

Respuesta :

The expected rate of return on the bpj stock is calculated to be 6.23 percent.

The expected rate of return can be said to be the weighted average of the expected returns according to the different economic conditions.

First, we determine the probability of the recession economy as follows;

Recession economy probability = 1 - 0.55 - 0.20 = 0.25

Now the expected rate of return can be calculated as follows;

E(R) = 0.20(-0.047) + 0.55(0.063) + 0.25(0.148)

E(R) = (-0.0094) + 0.03465 + 0.037  

E(R) = 0.0623

Converting it into percentage as follows;

E(R) = 0.0623 × 100 = 6.23%

Therefore, the expected rate of return on the bpj stock is calculated to be 6.23%.

To learn more about the rate of return, click here:

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