Question

your investment has a 20% chance of earning 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 7%. what is your expected return on investment

Answer 1

8.9%

Step-by-step explanation:

From the question above

- The investment has 20% chance of earning 30% rate of return

= 20/100

Number or chances= 0.2

- The investment has a 50% chance of earning 10% rate of return

= 50/100

Number of chances = 0.5

- The investment has 30% chance of losing 7%

= 30/100

Number of chances= 0.3

Therefore, the expected return on investment can be calculated as follows

=0.2(30) + 0.5(10) + 0.3(-7)

=6 + 5 - 2.1

= 11-2.1

= 8.9%

Hence the expected return on investment is 8.9%