Question

You invest $7,000 in a stock that has a 25% chance of a 6% return, a 35% chance of a 9% return and a 40% chance of a 10% return. What is your expected return after one year? A. 7.85% B. 8.65% C. 8.25% D. 9.00%

Answer 1

Answer:Expected return=8.65%--- B

Explanation:

Expected return = (p1r1) + (p2r2) + ………… + (pn rn)

Where

p= Probability of each return in a scenario

r= Rate of return with different probability in a given scenario

n= scenario number

Expected return= (6 X 0.25 ) + 9 X 0.35) +10 X 0.40)

=1.5 + 3.15 + 4

=8.65%