Problem:
You recently purchased a stock that is expected to earn 26 percent in a booming economy, 15 percent in a normal economy, and lose 4 percent in a recessionary economy. There is a 27 percent probability of a boom, a 63 percent chance of a normal economy, and a 10 percent chance of a recession.
Required:
What is your expected rate of return on this stock?
- 2.70 percent
- 12.33 percent
- 13.67 percent
- 8.04 percent
- 16.07 percent
Note: Please explain comprehensively and give step by step solution.