Question

Darren has the option of investing in either Stock A or Stock B. The probability of the return of Stock A being 25% is 0.45, 14% is 0.25, and 4% is 0.30. The probability of the return of Stock B being 30% is 0.30, 9% is 0.25, and 2% is 0.30. Given the probability distributions for the two investments, what is the expected rate of return for Stock A and Stock B?​
A. ​13.65%; 12.85%
B. ​17.82%; 11.95%
C. ​15.95%; 11.85%
D. ​16.80%; 11.45%
E. ​14.75%; 13.75%

Answer 1

Answer:

C)A is 15.95% ,B is 11.85%

Step-by-step explanation:

We know that the expected value in probability distribution is given as

Lets X is the expected value then

$X= \sum_{i=1}^{i=n} X_i P_i$

For stock A

X=0.25 x 0.45+0.14 x 0.25+0.04 x 0.3

X=0.1595

So the expected return for A is 15.95%

For stock 9

X=0.3 x 0.3+0.09 x 0.25+0.02 x 0.3

X=0.1185

So the expected return for B is 11.85%

So our option C will be the answer of that problem.