Compute the Expected Return Given These Three Economic States, Their

question 67

Multiple Choice

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}\begin{array} { c c r } \text { Eccrorric State }&\text { Probability } & \text { Return } \\\text { fast growth }&0.3 & 40 \% \\\text {slow growth }&0.4 & 15\% \\\text { recession }&0.3 & - 15\%\end{array}\end{array}$$

• A) 13.5 percent
• B) 22.5 percent
• C) 18.3 percent
• D) 40.0 percent

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Definitions:

Target Profits

The specific amount of net income a company aims to achieve within a certain time frame.

Variable Expenses

Costs that vary in direct proportion to changes in the level of activity or production volume.

Fixed Expenses

Costs that do not change in total over a wide range of activity levels or over a short period, such as rent or salaries.