question archive You loan a friend $5,000

You loan a friend $5,000

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You loan a friend $5,000. There is a 15% chance your friend will pay you a 3% return, a 40% chance he will pay you a 2% return and a 45% chance he will pay you only a 1% return.

What is your expected return after one year?

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Answer:

Hence, expected return after 1 year = 1.70%  
       
Loan given to friend = $5,000  
Return = 5000 x 1.70%    
85.00      
       
Answer : $85 (1.7% on $5,000)  

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