Question 7

Suppose that there are three possible outcomes for the stock market in the next year:

Good market: 27% return probability .20

Normal market: 8% return probability .60

Bad market: -8% return probability .20

Given this information, what is the expected return on the stock market?

	a)	8.6%
	b)	27%
	c)	9%
	d)	11.8%