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You have done a thorough study of the economy and Stock X and concluded that: (1) the probability of having a boom next year is
You have done a thorough study of the economy and Stock X and concluded that: (1) the probability of having a boom next year is 20 percent, a stable economy is 55 percent, and a recession is 25 percent, and (2) the price of Stock X will be $45 if there is a boom, $25 if the economy is stable, and $15 if there is a recession. What is the ex ante expected return on Stock X if it is currently selling for $24?
Can someone explains to me how to get E(return) and Prob * E Column answers please
Prob Price E(return) Prob*E(return) 0.175 Stable 0.55 25 4.17% 0.022916667 0.09375 10.417% Boom 0.21 45 87.50% Recession 0.25 15-37.50%Step by Step Solution
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