Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r }
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.3 & 40 \% \
\text {slow growth }&0.4 & 15\% \
\text { recession }&0.3 & - 15\%
\end{array}
\end{array}$$
A) 13.5 percent
B) 22.5 percent
C) 18.3 percent
D) 40.0 percent

Question

Compute the expected return given these three economic states, their likelihoods, and the potential returns:
$$\begin{array}{l}
\begin{array} { c c r } 
\text { Eccrorric State }&\text { Probability } & \text { Return } \
\text { fast growth }&0.3 & 40 \% \
\text {slow growth }&0.4 & 15\% \
\text { recession }&0.3 & - 15\%
\end{array}
\end{array}$$
A) 13.5 percent
B) 22.5 percent
C) 18.3 percent
D) 40.0 percent

Quizplus · Accepted Answer

To calculate the expected return, multiply each return by its probability and sum the results: $0.3 \times 40\% + 0.4 \times 15\% + 0.3 \times (-15\%) = 12\% + 6\% - 4.5\% = 13.5\%$.

Compute the Expected Return Given These Three Economic States, Their