A company is faced with a 20 percent chance of a poor economy, a 40 percent...

 

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A company is faced with a 20 percent chance of a poor economy, a 40 percent chance of an average economy, and a 40 percent chance of an above-average economy. The company would expect only a 10 percent return in a poor economy, an 18 percent return in an average economy, and a 30 percent return in an above-average economy. Use the hypothetical situation above to answer these questions to demonstrate the use of probability analysis in estimating returns: What would the expected return be for this company? What would the standard deviation be for this company? How does the standard deviation help you better understand what to expect in terms of a return? A company is faced with a 20 percent chance of a poor economy, a 40 percent chance of an average economy, and a 40 percent chance of an above-average economy. The company would expect only a 10 percent return in a poor economy, an 18 percent return in an average economy, and a 30 percent return in an above-average economy. Use the hypothetical situation above to answer these questions to demonstrate the use of probability analysis in estimating returns: What would the expected return be for this company? What would the standard deviation be for this company? How does the standard deviation help you better understand what to expect in terms of a return?

Answer rating: 100% (QA)

To calculate the expected return for the company we multiply the probability of each economic scenar... View the full answer