Question

You own a stock that you think will produce a return of 11 percent in a good economy and 3 percent in a poor economy. Given the probabilities of each state of the economy occurring, you anticipate that your stock will earn 6.5 percent next year. Which one of the following terms applies to this 6.5 percent?
A) Arithmetic return
B) Historical return
C) Expected return
D) Geometric return
E) Required return

Answer 1

Answer:

C) Expected return

Explanation:

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these results.

A really good return on investment for an active investor is 15% annually. It's aggressive, but it's achievable if you put in the time to look for bargains. You can double your buying power every six years if you make an average return on investment of 12% after taxes and inflation every year.

Answer 2

Answer:

C) Expected return

Explanation:

Arithmetic return or an average return is simply a mean of all return values.

Historical return as the name suggests is the past value of return index.

The return weather profit or loss anticipated on the investment is called expected return.

Geometric return is the mean value of all the compound returns.

Required return is the return required from the investment.