Answer:
The fruit company’s expected returns are 10.8%
Step-by-step explanation:
The expected returns of the fruit company is given by
For the given case,
Returns in normal rainfall = x₁ = 20% = 0.20
Returns in drought = x₂ = -3% = -0.03
Probability of normal rainfall = P(x₁) = 60% = 0.60
Probability of drought = P(x₂) = 40% = 0.40
So, the expected value of returns is
Therefore, the fruit company’s expected returns are 10.8%