Question

Stock has a 50% chance of producing a 46% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return?

Answer 1

Answer:

the firm expected rate of return is 20.4%

Explanation:

The computation of the expected rate of return is shown below:

= Respective Probabilities × respective returns

= 0.50 × 0.46 + 0.30 × 0.10 + 0.20 × -0.28

= 0.23 + 0.03 - 0.056

= 0.204

= 20.4%

hence, the firm expected rate of return is 20.4%

We simply applied the above formula so that the correct value could come

And, the same is to be considered