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

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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) About Me  (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.