Question

An investment portfolio has a 30% chance of earning $125,000 in a year, a 40% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000. What is its expected return?

Answer 1

$54,500

Step-by-step explanation:

Expected return is total of probability weighted return of each possibility, which is calculated as follows:

Expected return = (125,000 * 30% + 50,000 * 40% + 0 * 15% - 20,000 *15%)

Expected return = $54,500