Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.If the utility an investor derives from a 10 percent return on Microsoft stock is 200 and the utility the investor derives from a 20 percent return is 400,the investor's expected utility from holding Microsoft stock is _____.
A)300
B)350
C)250
D)400

Question

Quizplus · Accepted Answer

The expected utility is calculated by multiplying each outcome's utility by its probability and summing these products: (0.25 * 200) + (0.75 * 400) = 50 + 300 = 350.

Suppose Microsoft Stock Will Provide Either a Return of 10