Assume that a security has two possible outcomes. There is a 50 percent chance that the yield will equal 12 percent and a 50 percent chance that the yield will equal 4 percent. The expected yield for this security is
A) 16 percent.
B) 12 percent.
C) 8 percent.
D) 4 percent.

Question

Quizplus · Accepted Answer

The expected yield is calculated as the average of the two possible outcomes, weighted by their probabilities: (0.5 * 12%) + (0.5 * 4%) = 6% + 2% = 8%.

Assume That a Security Has Two Possible Outcomes