If an investment is 70 percent likely to return 10 percent per year and 30 percent likely to return 15 percent a year, then its average expected rate of return is
A) 10.5 percent.
B) 11.0 percent.
C) 11.5 percent.
D) 12.5 percent.

Question

Quizplus · Accepted Answer

We can calculate the average expected rate of return by finding the weighted average of the potential returns, where the weights are the probabilities of each return occurring.

Expected Rate of Return = (0.7 * 10%) + (0.3 * 15%)

Expected Rate of Return = 7% + 4.5%

Expected Rate of Return = 11.5%

Therefore, the answer is (C) 11.5 percent.

If an Investment Is 70 Percent Likely to Return 10