Consider the following information: Probability of State of State of Economy Recession Boom Economy .34 .66 Expected return Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Portfolio Return if State Occurs -.19 .27 %

Q: Consider the following information: Probability of State of Economy State of Economy Recession Boom…

A: Probability of Recession = 0.29Probability of Boom = 0.71Return under Recession = -0.09Return under…

Q: Following are three economic states, their likelihoods, and the potential returns:   Economic State…

A: A standard deviation (or  σ ) is a measure of how spread out the data is with respect to the mean.

Q: None

A: Step 1: Expected Return CalculationCalculate the expected return for each stock:Stock A: (0.32 *…

Q: Consider the following information: State of Economy Recession Boom Probability of State of Economy…

A: State of economyProbabilityRate of return if state occursRecession0.39-0.13Bust0.610.25

Q: Based on the following information, what is the standard deviation of returns? Rate of Return if…

A: Deviation = Return -expected returnSquared deviation = Deviation ^2Standard deviation = Variance…

Q: Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational…

A: To solve the problem, we need to calculate the standard deviation of expected returns and beta for…

Q: Following are three economic states, their likelihoods, and the potential returns: Economic State…

A: Expected return is defined as the sum of returns multiplied with respective probabilities. Where as…

Q: Bhupendra

A: Here's how you can calculate the expected return and the standard deviation of returns:Expected…

Q: Consider the following information: State of Economy Boom Good Poor Bust Probability of State- of…

A: The weightage of each scenario's chance of occurrence together with the profit that could be…

Q: Consider the following information: State of Probability of Economy State of Economy .20 .40 .30 .10…

A: Weight of Stock A = 0.31Weight of Stock B = 0.38Weight of Stock C = 0.31Expected Return during Boom…

Q: Consider the following information: State of Economy Recession Normal Boom Probability of State of…

A: Expected return refers to the rate of return that is earned by the investors over the investment…

Q: State of Economy Bust Boom State of Economy Probability of State of Economy 0.50 0.50 Bust Boom…

A: Expected return in finance is a fundamental concept representing the anticipated gains or losses on…

Q: Consider the following scenario analysis: Scenario Recession Normal economy Boom Rate of Return…

A: Standard Deviation:-In the world of finance standard deviation helps gauge how risky an investment…

Q: Consider the following information: State of Economy Recession Normal Boom Probability of State of…

A: Standard deviation measures the risk involved in earning a return from the stock. lower the risk…

Q: Based on the following information, what is the standard deviation of returns? State of Economy…

A: The standard deviation shows the average volatility in the returns of the stock.It shows to what…

Q: You are given the following information: ETT State of Economy State of Economy If State Occurs…

A:

Q: There are two risky assets, and their volatilities are 8% (Asset 1) and 24% (Asset 2). Their return…

A: If two Assets (i.e Asset 1 and Asset 2) are perfectly negatively correlated i.e their return…

Q: Consider the following information:   State of Economy Probability of State of Economy Rate of…

A: Expected Return: It represents the amount of loss or profit expected by the investor from an…

Q: Consider the following scenario analysis: Scenario Recession Normal economy Boom Probability 0.20…

A: Scenario Probability Stocks Bonds Recession0.2-5%19%Normal economy 0.620%10%Boom 0.227%4%

Q: Consider the following information: State of Economy Recession Normal Boom Probability of State of…

A: The expected return using probabilities is calculated using following equation Expected return =…

Q: None

A: Step 1: Initial Scenario:State of Economy:Fast growth: 0.11 probability, 35% returnSlow growth: 0.50…

Q: Probability of State of Economy State of Economy Recession .20 Normal .50 Boom .30 Iculate the…

A: Returns from stock investments depend on market conditions and the market conditions change due to…

Q: Consider the following scenario analysis: Scenario Recession Normal economy Boom Rate of Return…

A: Scenario Analysis Explained Step-by-StepThis analysis helps us understand the potential performance…

Q: Consider the following information: State of Economy Recession Normal Boom Probability of State of…

A: Expected return is determined by weighing the potential outcomes of an investment against their…

Q: Use the following information on states of the economy and stock returns to calculate the expected…

A: State of economyProbability of state of economySecurity Return if state…

Q: Given the following information, what is (i) the expected return and (ii) the portfolio standard…

A: Expected Return of the stock is the summation of all situation Probability*Return ie.…

Q: Use the following information on states of the economy and stock returns to calculate the expected…

A: Given DataStates of the economy: Recession, Normal, BoomSecurity Returns:Recession: −8% Normal: 13%…

Q: Compute the expected return given these three economic states, their likelihoods, and the potential…

A: The expected return on a security or asset is given by: Expected return (Er) = Sum of (Probability *…

Q: Consider the following information: Rate of Return if State Occurs State of Economy Probability of…

A:

Q: An investor is considering the purchase of Gryphon stock, which has returns given in the table…

A: The expected return of the stock refers to the weighted average of the observed returns to find the…

Q: Consider the following information: State of Economy Boom Good Poor Bust Probability of State- of…

A: Standard deviation refers to teh square root of variance that shows the average amount of the mean…

Q: Following are three economic states, their likelihoods, and the potential returns: Return 32%…

A: Standard deviation measures the risk involved in earning a return from the stock. lower the risk…

Q: Consider the following information in Figure 1 below for a portfolio including security A and…

A: In the given case, we have provided the return of stock A and B and their probability of each state…

Q: Consider the following scenario analysis: Scenario Recession Normal economy Boom Rate of Return…

A: Treasury Bonds: Treasury bonds, issued by the U.S. Department of the Treasury, are long-term debt…

Q: Consider the following information: State of Economy Recession Normal Boom Probability of State of…

A: The expected return refers to the return the investment provides on average to the investors. It…

Q: Use the following information on states of the economy and stock returns to calculate the expected…

A: An expected return is calculated by multiplying potential outcomes by the there probabilities

Q: ABC Inc. is considering a project that has the following cash flow data.  What is the project's IRR?…

A: IRR is the rate at which NPV of the project is zero

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.