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Assume that the return () on a firm's share depends on three 'states' of the economy - a good state, a normal state and a
Assume that the return () on a firm's share depends on three 'states' of the economy - a good state, a normal state and a bad state. The probability of a bad state 0.3, the probability of a good state is 0.2 and the probability of a normal state is 0.5. The table below gives the return on 3 shares issued by three firms: A, B and C in different states of the economy. Which share offers the highest expected return?
State of the Economy | |||
Firm | Good | Normal | Bad |
A | 6 | 4 | 2 |
B | 8 | 3 | 1 |
C | 6 | 5 | 3 |
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