Question

You invest $200 in a stock that has a 10% chance of a 1% return, a 40% chance of a 4% return and a 50% chance of an 8% return. what is your expected return after one year?

Answer 1

The expected return on an investment of $200 in a stock at the end of one year will be $11.4.

What is the expected return?

The total amount of return that is required by an investor over his class(s) of investments during a particular financial period, is known as the expected return.

The computation of expected return using the given formula will be,

$\rm Expected\ Return= 200\ x\ [(0.10\ x\ 0.01)+(0.40\ x\ 0.04)+(0.50\ x\ 0.08)]\\\\\rm Expected\ Return=200\ x\ 0.057\\\\\rm Expected\ Return=\ 11.4$

Hence, the expected return is as computed above.

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