An investor puts $1,000 into an investment that will return $1,250 one-half of the time and $900 the remainder of the time. The expected return for this investor is:
A) $1,075
B) 5.0%
C) 7.5%
D) 15.0%

Question

Quizplus · Accepted Answer

The expected return is calculated by multiplying each possible return by its probability and summing the results: (0.5 * $1,250) + (0.5 * $900) = $625 + $450 = $1,075. The expected return percentage is (($1,075 - $1,000) / $1,000) * 100% = 7.5%.

An Investor Puts $1,000 into an Investment That Will Return