Question

Elrond has made an investment that will generate returns that are based on the state of the economy. Use the following information to calculate the variance of the return distribution for Elrond's investment. (Do not round intermediate computations. Round your final answer to four decimal places.)State Return ProbabilityWeak 0.10 0.8OK 0.17 0.1Great 0.28 0.1

Answer 1

Answer:

expected return 12.60%

Explanation:

we have to weight the outcomes:

$\left[\begin{array}{cccc}State&Return&Probability&Weight\\Weak&0.1&0.8&0.08\\Ok&0.18&0.1&0.018\\Great&0.28&0.1&0.028\\Total&&1&0.126\\\end{array}\right]$

we multiply the return consiering the probability of occurrency then, we add them to know the expected return o nthe investment which, in this case, is 12.60%