question archive You invest $1,000 in a stock that has a 15% chance of a 1% return, a 60% chance of a 5% return and a 25% chance of a 7% return
You invest $1,000 in a stock that has a 15% chance of a 1% return, a 60% chance of a 5% return and a 25% chance of a 7% return
Subject:FinancePrice:2.87 Bought7
You invest $1,000 in a stock that has a 15% chance of a 1% return, a 60% chance of a 5% return and a 25% chance of a 7% return. What is your expected return after one year?
4.3%
4.5%
5.3%
4.9%
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Answer:
Given,
Probability 1 = 15%
Return 1 = 1%
Probability 2 = 60%
Return 2 = 5%
Probability 3 = 25%
Return 3 = 7%
Solution :-
Expected return = (Probability 1 x Return 1) + (Probability 2 x Return 2) + (Probability 3 x Return 3)
= (15% x 1%) + (60% x 5%) + (25% x 7%)
= 0.15% + 3% + 1.75% = 4.9%
