An analyst estimates there is a probability of 18 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 -12 percent in a recession, 10 percent under normal conditions and 24 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.
An analyst estimates there is a probability of 18 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 -12 percent in a recession, 10 percent under normal conditions and 24 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.
Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter2: Exponential, Logarithmic, And Trigonometric Functions
Section2.3: Applications: Growth And Decay
Problem 16E
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An analyst estimates there is a probability of 18 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 -12 percent in a recession, 10 percent under normal conditions and 24 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.
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