An analyst estimates there is a probability of 22 percent that there will be a recession next year. He thinks the probability of things being normal is three times the probability of a recession, with...


An analyst estimates there is a probability of 22 percent that there will be a recession next year. He<br>thinks the probability of things being normal is three times the probability of a recession, with the<br>remaining probability assigned to a boom taking place. A stock is expected to return -18 percent in a<br>recession, 9 percent under normal conditions and 22 percent if there is a boom. What is the expected<br>return (in percent) on this stock? Answer to two decimals, carry intermediate calcs. to four decimals.<br>

Extracted text: An analyst estimates there is a probability of 22 percent that there will be a recession next year. He thinks the probability of things being normal is three times the probability of a recession, with the remaining probability assigned to a boom taking place. A stock is expected to return -18 percent in a recession, 9 percent under normal conditions and 22 percent if there is a boom. What is the expected return (in percent) on this stock? Answer to two decimals, carry intermediate calcs. to four decimals.

Jun 09, 2022
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