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A portfolio's value increases by 18% during a nancial boom and by 9% during normal times. It decreases by 12% during a recession. What is the expected return on this portfolio if each scenario is equally likely?

Respuesta :

Answer:

expected return = 5%

Step-by-step explanation:

given data

increases during nancial boom = 18%

increases during normal times = 9%

decrease  during recession =  12%

to find out

expected return on this portfolio

solution

we know there are 3 scenario

so each scenario = [tex]\frac{1}{3}[/tex]

we get here expected return on this portfolio that is express as

expected return = 0.18 × [tex]\frac{1}{3}[/tex] + 0.09 × [tex]\frac{1}{3}[/tex] - 0.12 × [tex]\frac{1}{3}[/tex]

expected return = 0.05

expected return = 5%