document.write( "Question 1132694: A portfolio's value increases by 18% during a financial boom and by 9% during normal times. It decreases by 12% during a recession. What is the expected return on this portfolio if each scenario is equally likely? (round to the nearest whole percent) \n" ); document.write( "

Algebra.Com's Answer #749803 by ikleyn(52781) $\"\"$ $\"About$

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document.write( "Let the portfolio value will be x (dollars).\r\n" );
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document.write( "Then with the probability    we have  x*(1+0.18)  dollars  at a financial boom,\r\n" );
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document.write( "     with the probability    we have  x*(1+0.09)  dollars  at normal times,\r\n" );
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document.write( "and  with the probability    we have  x*(1-0.12)  dollars  at a recession.\r\n" );
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document.write( "Then the expected return is   = . = . = 1.05x.\r\n" );
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document.write( "ANSWER.  Expected return on this portfolio is  5%  at given conditions.\r\n" );
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