Asked by Rachel Oftedahl on May 07, 2024
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You have been given this probability distribution for the holding-period return for a stock: Stock of the Economy ProbabilityHPR Boom 0.4022% Normal growth 0.3511% Recession 025−9%\begin{array}{lcc} \text { Stock of the Economy } & \text { Probability} & \text {HPR } \\ \text { Boom } &0.40&22\%\\ \text { Normal growth } &0.35&11\%\\\text { Recession }&025&-9\%\end{array} Stock of the Economy Boom Normal growth Recession Probability0.400.35025HPR 22%11%−9%
What is the expected holding-period return for the stock?
A) 11.67%
B) 8.33%
C) 9.56%
D) 12.4%
E) None of the options are correct.
Expected Holding-Period Return
The total return anticipated on a bond if it is held until the end of its lifetime or holding period, including interest payments and capital gain or loss.
Probability Distribution
An analytical function that describes every probable value and its likelihood for a random variable over a predefined interval.
Stock of the Economy
The stock of the economy refers to the total value of all assets and investments available within an economy at a given time.
- Become familiar with the concept and the process of calculating expected returns and their standard deviation.
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Learning Objectives
- Become familiar with the concept and the process of calculating expected returns and their standard deviation.
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