It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption.
Answer:
a. 8%
Explanation:
Expected Return = [(Return*Probability)+(Return*Probability)+(Return*Probability) * 100%]
Expected Return = [{(15%*0.2)+(10%*0.2)+(5%*0.6)} * 100]%
Expected Return = [{(0.15*0.2)+(0.1*0.2)+(0.05*0.6)} * 100]%
Expected Return = [{0.03+0.02+0.03} * 100]%
Expected Return = [{0.08 * 100}]%
Expected Return = 8%
So, Liqin's expected return for fixing up and selling the Corvette is 8%.
Answer:
Portfolio B has a higher return but more volatile stocks. However it depends on how the individual can tolerate risks.
Explanation:
Expected return= free return + Beta (Expected rate of return – risk free rate)
Portfolio A
6%+ +.8*6%
= 6%+4.8%= 10.8%
Portfolio B
6%+1.5(6%)
6%+9%= 15%
It depends on different factors. Portfolio B has a higher return but more volatile stocks. However it depends on how the individual can tolerate risks.
