2 Consider Stock B, which has three possible returns: +50 percent Oy: & -50%. The 3 possible retlims are…

Question:

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2 Consider Stock B, which has three possible returns: +50

percent Oy: & -50%. The 3 possible retlims are equally prober

is the expected &

of

return for shock B?

Probability

A

0.25

0.25

0.25

0.25

(1)

Compute

0.10

0.05

0 20

0

the

0.15

O

0.25

10.05

expected

-0.5

0.10

-1.5

0.05

returns of

each stock?

Expert Answer:

Answer rating: 100% (QA)

To compute the expected return for each stock we need to multiply each return by its corresponding p

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