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What is the expected return on the Market Index

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Question - In one year the economy will either be weak, normal, or strong with probabilities of .3, .35, and .35 respectively. Security W pays $100 if the economy is weak security N pays $100 if the economy is normal, and security S pays $100 if the economy is strong. The current prices of these securities are as follows: W = $40, N = $30, S = $25. What is the expected return on the Market Index (M) that pays $800, $1000 or $1200 depending on whether the economy is weak, normal or strong respectively?

Reference no: EM133158019

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