Problems



Problems

Complete the following problems.

Required:

You are considering buying stock A, which is a large firm with a steady business. If the economy grows rapidly, you may earn 12% on your investment. A declining economy will likely result in a 5% loss. Slow growth will return 5%.

If the probability is 15% for rapid growth, 20 % for a declining economy, and 65% for slow growth, what is the expected return of the investment?

Solution:

First, the decimal .15 is the same as 15% and .20 is the same as 20%. It is easier to use all decimals, or you can use both.

15 ...