SOLUTION: IF THERE IS 20% CHANCE WE WILL GET A 16% RETURN, A 30% CHANCE OF GETTING A 14% RETURN, A 40% CHANCE OF GETTING A 12% RETURN, AND A 10% CHANCE OF GETTING AN 8% RETURN, WHAT IS THE E

Question 69777: IF THERE IS 20% CHANCE WE WILL GET A 16% RETURN, A 30% CHANCE OF GETTING A 14% RETURN, A 40% CHANCE OF GETTING A 12% RETURN, AND A 10% CHANCE OF GETTING AN 8% RETURN, WHAT IS THE EXPECTED RATE OF RETURN?
I GOT 12% BUT I AM SO DOUBTFUL THATS CORRECT, PLEASE ADVISE AND EXPLAIN HOW TO ARRIVE AT THE CORRECT SOLUTION WITH THESE PROBLEMS.
THANK YOU FOR YOUR MUCH NEEDED HELP.
ANNETTE

Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
IF THERE IS 20% CHANCE WE WILL GET A 16% RETURN, A 30% CHANCE OF GETTING A 14% RETURN, A 40% CHANCE OF GETTING A 12% RETURN, AND A 10% CHANCE OF GETTING AN 8% RETURN, WHAT IS THE EXPECTED RATE OF RETURN?
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Expected Value:
0.20(0.16) + 0.30(0.14) + 0.40(0.12)= 0.122
or 12.2%
Cheers,
Stan H.
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