Compute the expected return given these three economic states, their likelihoods, and the potential returns:

A)(-4.3 percent)
B)14.1 percent
C)19.1 percent
D)29.0 percent

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns:

A)(-4.3 percent) 
B)14.1 percent 
C)19.1 percent 
D)29.0 percent

Quizplus · Accepted Answer

To compute the expected return, we multiply the potential return for each economic state by its likelihood, and sum up the products.

Expected return = (0.3 x 10.8%) + (0.5 x 14.2%) + (0.2 x 18.1%) = 3.24% + 7.10% + 3.62% = 13.96%

Therefore, the closest answer is B: 14.1 percent.

Compute the Expected Return Given These Three Economic States, Their