Question

Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 6%. What is your expected return on this investment

Answer 1

Answer:

9.2%

Explanation:

expected return of the investment = potential return x chance of each return happening

Expected return of the investment:

• 20% chance of occurring x 30% potential return = 0.2 x 30% = 6%
• 50% chance of occurring x 10% potential return = 0.5 x 10% = 5%

• 30% chance of occurring x -6% potential return = 0.3 x -6% = -1.8%
• total expected return = 9.2%