Investor Bill Johnston is interested in the stock of Designs Unlimited. There is 7 percent probability of a slower than normal economy, 22 percent probability of a normal economy, 46 percent probability of a better than average economy, and 25 percent probability of a fast growing economy. A stock has returns of −20.9 percent, 4.5 percent, 12.3 percent and 28 percent in these states of the economy, respectively. What is the stock's expected return?

Investor Bill Johnston is interested in the stock of Designs Unlimited. There is 7 percent probability of a slower than normal economy, 22 percent probability of a normal economy, 46 percent probability of a better than average economy, and 25 percent probability of a fast growing economy. A stock has returns of −20.9 percent, 4.5 percent, 12.3 percent and 28 percent in these states of the economy, respectively. What is the stock's expected return?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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