Assume a portfolio has the possibility of returning 7%, 8%, 10%, or 12%, with likelihood of 20%, 30%, 25%, and 25%, respectively. The expected value of the portfolio is:
A)10.0%.
B)9.0%.
C)9.3%.
D)9.25%.
E)None of the above

Question

Quizplus · Accepted Answer

To find the expected value, we multiply each possible return by its respective likelihood and sum up the results.

Expected value = (0.20 x 7%) + (0.30 x 8%) + (0.25 x 10%) + (0.25 x 12%) 
Expected value = 1.4% + 2.4% + 2.5% + 3.0% 
Expected value = 9.3%

Therefore, the answer is (C) 9.3%

Assume a Portfolio Has the Possibility of Returning 7%, 8