Question

An investment firm offers three types of equity Investments, A, B, and C. Of the firm's clients, 30% invest in A, 50% Invest in B, and 20% Invest in

C. The rates of return are 10%, 6%, and 7% for A, B, and C, respectively. What is the expected value of the total return rate for the firm's clients?
A. 6.2%
B. 7.1%
c. 7.4%
D.8.2%

Answer 1

The expected value of the total return rate for the firm's clients is calculated by taking the weighted average of the returns, resulting in an expected return of 7.4%.

Step-by-step explanation:

To find the expected value of the total return rate for the firm's clients, calculate the weighted average of the returns of investments A, B, and C using the proportions of clients invested in each.

1. Multiply the percentage of clients invested in investment A (30%) by its return rate (10%):
   0.30 * 0.10 = 0.03 or 3%
2. Multiply the percentage of clients invested in investment B (50%) by its return rate (6%):
   0.50 * 0.06 = 0.03 or 3%
3. Multiply the percentage of clients invested in investment C (20%) by its return rate (7%):
   0.20 * 0.07 = 0.014 or 1.4%
4. Add the products to find the total expected return:
   3% + 3% + 1.4% = 7.4%

Therefore, the expected value of the total return rate for the firm's clients is 7.4%%.