An investment has a 20% chance of achieving a 5% rate of return, 25% chance of returning 10%, a 15% of returning 25%, and a 40% of returning 15%. What is the average expected rate of return for Investment X:

Question

Quizplus · Accepted Answer

The average expected rate of return is calculated by multiplying each possible rate of return by its probability and then adding the results. In this case, the average expected rate of return is:(0.20 x 0.05) + (0.25 x 0.10) + (0.15 x 0.25) + (0.40 x 0.15) = 0.1325 or 13.25%

An Investment Has a 20% Chance of Achieving a 5