You are given the following probability distribution of returns for stock IN A probability of 2 that the return will be 12 a probability of 35 that the return will be 18 a probability of 3 that the return will be 10 and a probability of 15 that the return will be 10 What is the expected return of this stock

Correct Question

You are given the following probability distribution of returns for stock IN A probability of 0.2 that the return will be 12 a probability of 0.35 that the return will be 18 a probability of 0.3 that the return will be 10 and a probability of 0.15 that the return will be 10 What is the expected return of this stock

expected return of this stock =  13.2%

Explanation:

The expected rate of return is the weighted average of all the possible returns associated with an investment decision. The returns are weighted using the probability associated with their outcomes.

Expected return = WaRa + Wb+Rb + Wn+Rn

W- weight of the outcome, R - return of the outcome

=(0.2× 12%) + (0.35× 18%) + (0.30×10%) + (0.15 × 10%)

=  13.2%