Assume that you expect to hold a $20,000 investment for one year.It is forecasted to have a yearend value of $21,000 with a 30% probability; a yearend value of $24,000 with a 45% probability; and a yearend value of $30,000 with a 25% probability.What is the expected holding period return for this investment?
A) 50%
B) 25%
C) 23%
D) 18%

Question

Quizplus · Accepted Answer

To calculate the expected holding period return, we need to take the weighted average of the possible returns based on their probabilities.

Expected holding period return = (0.3 x 5%)+(0.45 x 20%)+(0.25 x 50%) = 1.5% + 9% + 12.5% = 23%.

Therefore, the best choice is C) 23% as it provides the expected holding period return for the investment.

Assume That You Expect to Hold a $20,000 Investment for One