Given the following probability distributions,what are the expected returns for the Market and for Security J?
A) 10.0%; 11.3%
B) 9.5%; 13.0%
C) 10.0%; 9.5%
D) 10.0%; 13.0%
E) 13.0%; 10.0%

Question

Given the following probability distributions,what are the expected returns for the Market and for Security J? 
A) 10.0%; 11.3% 
B) 9.5%; 13.0% 
C) 10.0%; 9.5% 
D) 10.0%; 13.0% 
E) 13.0%; 10.0%

Quizplus · Accepted Answer

The expected return for the market is the weighted average of the probability distribution. 
E(R_market) = 0.4(8%) + 0.6(12%) = 9.6%
The expected return for Security J is also the weighted average of its probability distribution. 
E(R_J) = 0.3(8%) + 0.5(10%) + 0.2(18%) = 13%
Therefore, the answer is (D) 10.0%; 13.0%.

Given the Following Probability Distributions,what Are the Expected Returns for the Market