Question

Your investment has a 20% chance of earning a 4% rate of return, a 40% chance of earning a 9% rate of return, and a 40% chance of losing 2%. What is your expected return on this investment? Note: Express your answers in strictly numerical terms

Answer 1

The expected return on this investment is 3.6%.

Step-by-step explanation:

To find the expected return on this investment, we multiply each possible return by its corresponding probability and then sum them up.

In this case, the possible returns are 4%, 9%, and -2%, with probabilities of 20%, 40%, and 40% respectively.

So, the expected return can be calculated as:

(4% * 20%) + (9% * 40%) + (-2% * 40%) = 0.8% + 3.6% - 0.8% = 3.6%

Therefore, the expected return on this investment is 3.6%.