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Author Question: Given the expected returns and probabilities of various states of the world in this table, what is ... (Read 28 times)

tatyanajohnson

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on: Jul 10, 2018
Given the expected returns and probabilities of various states of the world in this table, what is the expected return for Carbide Company?
 
  Carbide Company
  State of the Economy Probability of State Return on State
  Boom .30 18
  Steady .55 10
  Recession .15 -5
 
  A) 10.15
  B) 5.40
  C) 5.50
  D) -0.75

Question 2

Andre is considering an investment in Bristol Inc. and has gathered the following information. What is the expected return for a share of the firm's stock?
 
  State of the Economy Probability of the
  State Conditional Expected Return
  Bristol Inc.
  Recession .20 -10
  Steady .50 10
  Boom .30 45
 
  A) 45.00
  B) 65.00
  C) 16.50
  D) 15.00


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Jbrasil

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: A
Explanation: A) Expected payoff =  payoffi  probabilityi = .30  18 + .55  10 + .15  -5 = 10.15

Answer to Question 2

Answer: C
Explanation: C) Expected payoff =  payoffi  probabilityi = .20  -10 + .50  10 + .30  45 = 16.50.


tatyanajohnson

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Reply 2 on: Jul 10, 2018
Great answer, keep it coming :)

elyse44

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  • Posts: 319
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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