You are considering investing in a project with the following possible outcomes: Calculate the expected rate of return for this investment.
A)9.8%
B)7.0%
C)8.3%
D)6.3%

Question

You are considering investing in a project with the following possible outcomes:  Calculate the expected rate of return for this investment.
A)9.8% 
B)7.0% 
C)8.3% 
D)6.3%

Quizplus · Accepted Answer

To calculate the expected rate of return, we need to find the weighted average of the possible outcomes, where the weights are the probabilities of each outcome occurring.

(0.3 x 5%) + (0.5 x 8%) + (0.2 x 12%) = 2.5% + 4% + 2.4% = 8.9%

Therefore, the expected rate of return for this investment is 8.9%, which is closest to choice C (8.3%).

You Are Considering Investing in a Project with the Following