You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $5,000 or $6,000, with an equal chance of either outcome occurring. What is the expected rate of return?
A)10%
B)15%
C)20%
D)25%

Question

Quizplus · Accepted Answer

The expected value of the investment one year from now is calculated as the average of the two possible outcomes: (5000 + 6000) / 2 = 5500. The expected rate of return is then calculated as (5500 - 5000) / 5000 = 0.10, or 10%.

You Have the Opportunity of Making a $5,000 Investment