Question

Expected return is defined as _____. A. the summed value of each possible rate of return weighted by its probability B. the summed value of each possible rate of return discounted for inflation C. the average probability of profit on a fair investment D. the expected probability of high returns on an investment

Answer 1

Answer: A. the summed value of each possible rate of return weighted by its probability

Explanation:

The Expected Return of a project is indeed the summed value of each possible rate of return weighted by its probability.

When going into a project, a financial analyst has to account for the possible outcomes that could happen such as interest rates rising or falling.

They then take the various likelihoods and assign rates of returns to them that are either known or anticipated. They will then give each likelihood a probability of it occuring and then give a Weighted Average of these probabilities along with the rates of returns for those likelihoods.

The summed figured that they get is what is known as the Expected return and it includes the various likelihoods that could happen to the project.