Question

12
What is the expected share return given the following macro-economic probabilities? Probability of
recession 20% - Share return 5%; Probability of steady state 60% - Share return 10%; Probability of
boom 20% - Share return 15%

Answer 1

Considering the given discrete probability distribution, it is found that the expected share is of 10%.

What is the mean of a discrete distribution?

The expected value of a discrete distribution is given by the sum of each outcome multiplied by it's respective probability.

In this problem, the distribution is given by:

• P(X = 0.05) = 0.2.

• P(X = 0.1) = 0.6.

• P(X = 0.15) = 0.2.

Hence the expected value is given by:

E(X) = 0.2 x 0.05 + 0.6 x 0.1 + 0.2 x 0.15 = 0.1 = 10%.

The expected share is of 10%.

More can be learned about the expected value of a discrete distribution at  https://brainly.com/question/24802582

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