Question

your investment has a 20% chance of earning a 26% rate of return, a 50% chance of earning a 14% rate of return and a 30% chance of losing 8%. what is your expected return on this investment?

Answer 1

To find the expected return on the investment, multiply the possible returns by their respective probabilities and sum them up. The expected return on this investment is 9.8%.

Step-by-step explanation:

To find the expected return on the investment, we multiply the possible returns by their respective probabilities and sum them up.

For the 26% rate of return with a 20% chance, the expected return is 26% * 20% = 5.2%.

For the 14% rate of return with a 50% chance, the expected return is 14% * 50% = 7%.

For the -8% rate of return with a 30% chance, the expected return is -8% * 30% = -2.4%.

Adding up all the expected returns:

5.2% + 7% - 2.4% = 9.8%.

The expected return on this investment is 9.8%.