Capital Markets and the Pricing of Risk

A corporation is determining whether to expand into a new territory. It has estimated the following based on possible changes in the economy. What is their expected growth and risk measure of the growth.

Economic Improvement Probability Growth

Gets Worse 20% -20%
no change 35% 0&
improves some 30% 5%
improve much 20% 35%

Does one use the following equation expected (mean) return to solve problem: expected return=E[R]=Sum Pr*R

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...k measure of the growth.

Economic Improvement Probability Growth

Gets Worse 20% -20%
no change ...