Consider the following information: State of Economy Probability of State of Economy Portfolio Return If State Occurs Recession .20 .16 Normal .45 .17 Boom .35 .25 Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % Solution Expected Return = (0.20*0.16) +( 0.45*0.17)+(0.35*0.25) = 0.032+0.0765+0.0875 = 19.6%.

1. Consider the following information: State of Economy Probability of State of Economy Portfolio
Return If State Occurs Recession .20 .16 Normal .45 .17 Boom .35 .25 Calculate the expected
return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.) Expected return %
Solution
Expected Return = (0.20*0.16) +( 0.45*0.17)+(0.35*0.25)
= 0.032+0.0765+0.0875
= 19.6%