In probability analysis, what technique is used to calculate the expected return?
A) Weight each of the possible outcomes by the probability of occurrence, and then calculate the arithmetic average of the weighted outcomes
B) Calculate the mean of the various possible outcomes
C) Calculate the weighted mean of all the possible outcomes
D) Identify the outcome that is most likely to occur

Question

Quizplus · Accepted Answer

To calculate the expected return, we need to weight each of the possible outcomes by the probability of occurrence, and then calculate the arithmetic average of the weighted outcomes. This gives us a more accurate representation of what we can expect to earn, taking into account the likelihood of each outcome. Option B simply calculates the mean without considering probabilities, while option C is similar to option A but adds unnecessary complexity. Option D only considers the most likely outcome and does not take into account the other possible outcomes or their probabilities.

In Probability Analysis, What Technique Is Used to Calculate the Expected