Suppose that Steve's Book Supplies has a return of 15% one-third of the time and a return of 0% two-thirds of the time. Your expected return from investing in Acme Widget would be
A)2.5%.
B)5.0%.
C)7.5%.
D)10.0%.

Question

Quizplus · Accepted Answer

To calculate the expected return, we take the weighted average of the possible returns. Since a return of 15% happens one-third of the time and a return of 0% happens two-thirds of the time, we can calculate the expected return as:
(15% * 1/3) + (0% * 2/3) = 5%
Therefore, the best choice is option B) 5.0%.

Suppose That Steve's Book Supplies Has a Return of 15